live in Indiana work at Illinois, showing $3000 tax to Illinois after nonresident tax, Indiana tax as resident, tax credit did not show up correctly and owe to indiana

[Mikes20222022]

live in Indiana but work at Illinois, paid $3000 tax to Illinois as nonresident first, then filled Indiana tax as resident, the Illinois state tax credit did not show up correctly in Turbotax, only show $1795, while Indiana State tax is $1875, so I owe Indiana tax. While per my understanding of Indiana IT-40, the credit should enough cover the Indiana tax. And check the turbotax generated it 40 form it seems TurboTax is using the income after all deductions in Illinois to calculate the credit instead of defined income from out of Illinois. Am I wrong? Thanks for suggestions.

[KrisD15]

Do you have any other tax on your Indiana return on the income, such as City or Local tax? 

[Mikes20222022]

Thanks for replying. Yes, there is about $900 Indiana local county tax which is in addition to the indiana state tax $1875. That county tax is correct, and Illinois state paid tax should cover Indiana state tax as credit but only pay Indiana county tax. I used other software before and it did exactly like this, that is why this year when I switched to TurboTax, I was confused.

[AmyC]

1. Let's start with your original question regarding calculation of credit: The credit will be the lower of the state tax liabilities on the same gross income. Differences in tax rate along with differences in how the taxable income is calculated will create different state taxable amounts.
2. IL tax is based on your entire income for the year times the IL percentage. So it can look like it is taxing all your income. Line 48 shows the percentage of income earned in IL.
3. Due to the calculation differences, IN tax on the income is $1795 and they will not give you credit larger than the IN tax on the same income. IL has a higher tax rate (4.95%0  than IN (3%), so that difference is what you pay for working in IL.
4. Add the local tax and you have your return complete.

[Mikes20222022]

thanks for reply.

Yes, the Illinois income that subject to indiana is $74000 and multiple.03 is around $2220. But the issue with TurboTax is that it is using the Illinois income that after all deductions, that is around $59833, then multiple 0.03 is $1795, am I wrong? I checked IT 40 instructions and other software that all give me $2220 and using $74000 as income subject to indiana. 

[DianeW777]

If you would like to send us a “diagnostic” file that has your “numbers” but not your personal information it would help.  If you would like to do this, here are the instructions:  (Don't forget to give us the state)

TurboTax Online:

Open your return -Go to the menu panel on the left side of your return and select Tax Tools. 

1. Then select Tools below Tax Tools.
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent.
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
5. Reply to this thread with your Token number and your state. This will allow us to open a copy of your return without seeing any personal information.

TurboTax Desktop:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax Desktop for Windows
2. Select 'Send Tax File to Agent'* > Follow the prompts to reach the token number.
   • Enter your email used for TurboTax > Enter your code > Send
3. Write down or send an image of your token number and state then place in this issue.
4. We can then review your exact scenario for a solution.
5. Please also tell us any states included in the return. This is necessary for us to view the return.
   • *If using a MAC, go to the menu at the top of the screen, select Help, then, 'Send Tax File to Agent')

We will be able to see exactly what you are seeing and we can determine what exactly is going on in your return to provide you with a resolution.

@Mikes20222022 

[Mikes20222022]

@DianeW777 thanks for the instruction.

The token number is 1333444 and I live in Indiana but work in Illinois.  

[DianeW777]

The returns are calculated correctly. The Schedule NR on the Illinois (IL) return is completed correctly and exemptions are allowed  before taxing the income. 

The IL return reduces the wage income by an exemption allowance on Schedule NR and so the actual income being taxed is lower than your wages as you discovered. When you go to the Indiana (IN) return the lower income is being used to determine if the tax to IN is below the tax charged in IL. 

The calculations are correct on both tax returns. The credit may be less than you were expecting.

State Returns - Your resident state requires you to include all worldwide income. Assume both states require income tax returns to be filed: 

1. Report the income on each state return that is from the nonresident state
2. Report it on your resident state and receive credit for taxes paid to another state.

Credit for taxes paid to another state is allowed by a resident state when the same income is being taxed to another state.  Your resident state does not want you to pay tax twice on the same income. The credit that is allowed will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

Please update here if you have additional questions.

@Mikes20222022

[Mikes20222022]

@DianeW777 

Thanks for reply.

On schedule 6, question 5. Credit for taxes paid to other states: enclose other state’s return .  As you see the on IT-40 instructions document, on page 36-38, group A worksheet, for B, the amount of income from other states. Also check the examples on page 38 on IT -40 instructions:Example. Ryan reported $10,000 Illinois-source wage income on the
Illinois nonresident individual income tax return, and paid $300 tax
to Illinois on that income. His Indiana state tax liability from line 8 of
Form IT-40 is $870.
He will enter the following information on the Group A Worksheet.
A. $300 (tax paid to Illinois)
B. $300 ($10,000 multiplied by .03, tax due to Indiana)
C. $870 (Form IT-40 line 😎
Ryan’s credit is $300, which is the lesser of A, B and C. 

It didn't say taxable income from other states that after exemptions and deductions.

[DianeW777]

The fact is the Illinois (IL) return is taxing you on less income because even as a nonresident you are entitled to an exemption allowance. In that regard, Indiana (IN) is not going to give you a credit for taxes paid to IL for any amount of income that is not taxed by IL.  The fact IN doesn't provide the same exemption allowance provides no difference in calculations. 

The credit is the lesser of what was actually paid or the tax the resident state would have charged on the same amount of income. IN Schedule 6 is doing the correct calculations.

From the instructions, on the page you cited: If you were an Indiana resident during the tax year and had income from any of the states listed in Group A below, you should first find out what the other state’s rules are concerning the taxation of your income.

@Mikes20222022