You have two separate questions. Here are your answers:
1. Error on the W-2. Check your entries. On the W-2 screen, you have an entry for state taxes, and, beneath that, a section for local taxes. The diagnostic will disappear when you enter the state taxes associated with Michigan by using the code in box 15 and the amounts in box 15 and 16 only. Do not enter any state information for Indiana. If you have, delete that line (trash can button). Then, on the local tax line (right beneath it), you enter the amounts reported to Indiana in boxes 18, 19, and the locality in box 20. Click on the associated state box and select Indiana for that box.
2. State ID. Your screen above has a MI state ID that is left blank. Therefore, double-check your Forms W-2 to see if there is any copy that has a Michigan state ID number next to the MI in box 15. If you don't see any, you will have to leave that information blank, and the likely result is that you will have to mail in your Michigan return.
I think I understand? FYI We both live in MI and work in IN. The W2 in question is my wife's. My W2 only has 1 line with MI > Employer's ID > and amounts in 16-18. Since we are in reciprocal states, we don't pay IN tax, so the state tax withheld in 16 must be for MI, correct? Should I just eliminate the IN line in 15? Her W2 is like this every year, and all copies are the same. Once more wrinkle in this: The ID# in 15 is not the same ID# that is in box b.
You are correct on everything you just stated. Yes, eliminate the IN line you entered for state (but not the local line). The ID in box 15 you show in your pic is for IN, and you will not enter that one next to MI in box 15. If you have a number for MI in box 15 of your W2, that is what you will enter. It does not matter that this number is different than in box b. Federal ID is different from state ID, and each state has their own number ID system.