NC Income but SC taxing NC income

[tegacaycard]

I live in SC 100% of the time. I earned 100% of my income in NC. I filed federal and NC state returns for refunds. However, Turbotax shows that I will owe income tax for SC. The allocation credit is 100%.

I will say that the SC income tax would be higher than what I paid in NC income tax so that might be generating the amount owed issue.

Question, SC is not allowed to tax my NC income at all, correct? Seems like this would be a bug in the Turbotax software. I know the supreme court ruling does not allow for the double taxation by two states especially when there is no part year issue whatsoever.

Thanks

[SteamTrain]

No...that is correct.  This has been worked out extensively, and fairly,  many years ago..

1)  You prepare the NC non-resident tax return first for the tax on just your wages, and NC keeps whatever part of your NC withholding they calculate they want.  (assuming your withholding overpaid what NC requires...sometimes you have to pay a bit more)

2) THEN you prepare the SC Resident ax return.  SC uses ALL your income from all sources, Wages, Interest, dividends...everything, and calculates the tax on all of it.   BUT, to avoid double-taxation, SC uses the "Credit for taxes paid to another state"  to reduce the tax.  So whatever NC kept on their tax forms, goes in as a credit on the SC tax forms.   AND...if the SC tax would have been a bit higher on the same income, SC just collects the excess over what NC charged.    (But also remember that SC taxes all your income form everywhere...NC can only tax your wages there in your situation)

This process is the same for every state that has an income tax...with exceptions for some states that have reciprocal tax agreements with a neighboring state....and a couple like CA-OR-AZ-IN that reverse the process.

Also, take an example where a person in SC takes a summer job in TX or TN, where there is no state income tax.  SC taxes all that TX or TN income, and there is no credit for taxes paid to the "other" state, since there weren't any paid.

[DavidS127 · Accepted solution]

Because you live in South Carolina, SC taxes all your income that is taxed by the federal government.  Because you earned the money in NC, NC taxes that income.  But, SC gives you a credit for the tax you pay to NC, up to what the SC tax would have been.  That way, you don't get taxed on the same dollar twice, but you do pay the highest tax rate of  the two states on that dollar.

[tegacaycard]

Thanks everyone for your help. Great information to know.