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You will file two returns. Kentucky and Indiana are reciprocal states which means that her employer in Kentucky is only supposed to take out Indiana and not Kentucky state tax. (They are allowed to take out KY local tax but there is a treatment for this also, which I will share at the end.) You therefore will need to file a KY nonresident reciprocal return so that she may get back all of the state tax that she paid to Kentucky. (However, you do pay IN state tax on that income).
In addition, she will want to fill out the correct form with her employer so that they do not take out KY state tax. Here is an FAQ with that information: https://ttlc.intuit.com/replies/4776822
For her KY local taxes, Indiana will provide a credit for that on the Indiana state return. I am including screenshots of what to look for in the Credits and Deductions section of the return. By filling in this information, your Indiana state tax will be lowered even further.
You will file two returns. Kentucky and Indiana are reciprocal states which means that her employer in Kentucky is only supposed to take out Indiana and not Kentucky state tax. (They are allowed to take out KY local tax but there is a treatment for this also, which I will share at the end.) You therefore will need to file a KY nonresident reciprocal return so that she may get back all of the state tax that she paid to Kentucky. (However, you do pay IN state tax on that income).
In addition, she will want to fill out the correct form with her employer so that they do not take out KY state tax. Here is an FAQ with that information: https://ttlc.intuit.com/replies/4776822
For her KY local taxes, Indiana will provide a credit for that on the Indiana state return. I am including screenshots of what to look for in the Credits and Deductions section of the return. By filling in this information, your Indiana state tax will be lowered even further.
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