Double taxing for New York and Illinois

[zmeya26]

Hi,

I earned approx. ~$25,000 while I was in new york even though my permanent residence is in Illinois (I am a student). 

It still seems I am getting taxed in Illinois (~$200) and in new york state.

Is this double taxing on my income supposed to be the case?

[LindaS5247]

When entering your state tax returns, when multiple states are involved, you should enter your nonresidential state tax return first (NY).

Then enter your residential state tax return (Ill).

It is recommended to prepare the nonresident state first, because your resident state will provide you a credit for the tax you pay to the nonresident state.  By preparing the nonresident state first, TurboTax can transfer the credit information to your resident state to return. 

Click here for additional information on filing multiple state returns.

Click here for information regarding filing multiple states returns.

Click here for how to delete your state return in TurboTax desktop.

Click here for how to delete your state tax return in TurboTax Online.

[zmeya26]

I filed them in the correct order, and i can see a message that I'm getting credits for taxes paid to another state. However, I'm still getting taxed by illinois.

Is there a way to fix my double taxing problem?

[BrittanyS]

In most states, residents pay tax on the income (from all sources) they receive during the calendar year. Residents typically get a tax credit for taxes paid to any other state.

As a non-resident, you still have to use an apportionment schedule to determine how much tax you owe in each state, but the interesting twist here is that you also pay tax on all of your income for the entire year to your resident state. Why do the apportionment schedule, then? Because you pay taxes on what you earned in the temporary state and what you pay to your resident state.

Does this sound like double taxation? It is, except that most states usually allow a credit on your resident return for the taxes you paid to the other (nonresident) state. This usually means that you won't pay any more tax than you would if you didn't have to complete the temporary state's return. But if your nonresident state has higher taxes than your resident state, you might pay more in total taxes because your resident state won't allow you full credit.

For more information, see the link below:

Multiple States

@zmeya26 

[zmeya26]

Thanks for your comment! It's extremely helpful.

If the nonresident state has higher taxes than my resident state, wouldn't it make sense for there to be extra credits, not credits that are lacking? Wouldn't the resident state not allow full credit if the nonresident tax is LOWER?

Thanks for helping me figure this out.

[BillM223]

With this method to avoid double taxation by the states (one state allows a credit for taxes paid to another state for taxes on the same income), there is unfortunately no guarantee that the taxes levied by the several states would be equal. That is almost certainly the last thing on the minds of the state legislatures as they manage tax code in a way similar to making sausages.

I.e., there are two things you don't want to watch, butchers making sausages, and lawmakers making laws...

[TomD8]

@zmeya26 --

Did you have any taxable income other than your earnings from NY (for example interest, dividends, capital gains from sale of stock)?

[zmeya26]

all of that was within my resident state, not the nonresident state.

[TomD8]

If you had income that was taxed by Illinois but not by New York, then that could well explain why your New York tax credit did not cover your entire Illinois tax bill.  The credit only applies to income that was taxed by both states.