I live in Indiana and work in Kentucky. I had local income taxes withheld. When I Import it shows associated state is Indiana on both lines 20. Is that correct or should one be Kentucky and one be Indiana?

[MiriamF]

Your W-2 is correct.

The state of Kentucky has a reciprocal agreement with Indiana, allowing Indiana residents who work in Kentucky to be taxed only in their state of residence. You needed to file the appropriate form with your employer, and apparently, you did. This is the relevant section of their instructions:

Reciprocal States—Kentucky has reciprocal agreements with specific states. These agreements provide for taxpayers to be taxed by their state of residence, and not the state where income is earned. Reciprocity does not apply to persons who live in Kentucky for more than 183 days during the tax year. The states and types of exemptions are as follows:

Illinois, West Virginia—wages and salaries

Indiana—wages, salaries and commissions

Michigan, Wisconsin—income from personal services (including salaries and wages)

Ohio—wages and salaries. Note: Wages which an S corporation pays to a shareholder-employee if the share- holder-employee is a “twenty (20) percent or greater” direct or indirect equity investor in the S corporation shall not be exempt under the reciprocity agreement.

Virginia—commuting daily, salaries and wages

Taxpayers who qualify for this exemption and have no other Kentucky taxable income should le Form 740-NP-R, Kentucky Income Tax Return, Nonresident–Reciprocal State, to obtain a refund. Also, nonresidents who qualify for the exemption should le Form 42A809, Certificate of Nonresidence, with their employer to exempt their future wages from Kentucky withholding. 

For more information, see below.

http://revenue.ky.gov/Forms/2016_42A740-NP(I).pdf

[ngoldbec]

I meant to ask which state do I list in box 21 for the associated state? When I import, both boxes for 21 say Indiana. Is that correct?

[MiriamF]

Yes. Because of the reciprocal agreement, you do not have to pay tax in KY. Therefore, you will not see KY on your W-2.

[ngoldbec]

I just want to make sure I'm clear, since I live in Indiana & work in Kentucky, I have 2 boxes only for Box 18 & 19. One locality is labeled Jefferson Co and one is Clark Co. when I import, the associated state shows Indiana on both lines. Is this correct? Should the associated state for boxes 18 & 19 with the Locality Jefferson CO say KY or Indiana?

[MiriamF]

Since there is a Jefferson County right next to Clark County (and across the Ohio River from Jefferson County, KY) (yikes!), let's assume that your employer knew what he was doing when he wrote your W-2.

[MiriamF]

Both states do collect county taxes via withholding from your paycheck. Your best answer will come from your company's HR department.

[jessicasawyer89]

I have the exact same problem. Box 15 lists IN only with one amount reported in boxes 16-17; However I have two amounts in boxes 18-20; One local withholding says "Indiana" and the second says "Jeff C." so I am not sure if the amount reported for "Jeff C." was withheld for Indiana or Kentucky?

[ngoldbec]

I think I have this figured out, no thanks to the tax professionals. I noticed when I put down IN for both lines it gives you a credit for the Indiana return, which you can claim local taxes paid to another state when you work in Kentucky and live in Indiana. I put down IN & KY for the associated states based on the county’s and received the same amount of credit on my Indiana return as if I chose IN for the associated state for both lines on the federal return. The claim this as “double dipping” if you select IN for both lines & select the local tax credit on your state return. I hope this makes since.

[ngoldbec]

I think I have this figured out, no thanks to the tax professionals. I noticed when I put down IN for both lines it gives you a credit for the Indiana return, which you can claim local taxes paid to another state when you work in Kentucky and live in Indiana. I put down IN & KY for the associated states based on the county’s and received the same amount of credit on my Indiana return as if I chose IN for the associated state for both lines on the federal return. The claim this as “double dipping” if you select IN for both lines & select the local tax credit on your state return. I hope this makes since.

[ngoldbec]

You basically would choose IN for the county for Indiana & Kentucky for Jefferson CO and then claim your credit to local taxes paid to another state on your Indiana return. It’s just confusing the way Turbo Tax adds the “associated state” question and the 1 line says Indiana and breaks down into 2 lines when you get to the counties.

[ngoldbec]

You basically would choose IN for the county for Indiana & Kentucky for Jefferson CO and then claim your credit to local taxes paid to another state on your Indiana return. It’s just confusing the way Turbo Tax adds the “associated state” question and the 1 line says Indiana and breaks down into 2 lines when you get to the counties.

[femarcher1]

My husband works in KY, but we live in IN. His employer keeps taking taxes out for KY even after he filled out the form to have them sent to IN. For two years we've been dealing with this. We've ended up using a tax professional, because the way turbotax has the software set up, we have to file in both states, and end up owing a buttload to IN out of pocket before we receive our KY taxes (which aren't as much as they would have been if his employer had been taking the taxes out for IN). The tax professional uses KY for the state taxes and doesn't file IN. I don't know if everything is being filled out properly, and I can't get a straight answer anywhere.

[DanielV01]

@femarcher1 Please post your question in a separate post and I will provide you instructions on how to do this.  I can say if KY state taxes are being taken out, your tax preparer is filing your return incorrectly.  However, there is another trick that you can apply.

[Ilw38]

Is there any way of getting the local taxes back if you dont live in that state like ky?