I am getting conflicting answers on this question so I was hoping to get someone to answer this finally. I live in Ky but work in Indiana. I paid state and local taxes to IN on my W2. I know I have to file KY since I live there, but not sure how to file Indiana. I paid in almost $2000 of taxes to Indiana and that's what the refund amount states in TurboTax. Ky is still showing I owe them $500 more. How do I file my returns in these states? Should I be getting a refund from Indiana since I don't live in the state? Turbo Tax should have a guide built by now to help walk people through this issue since it pertains to a lot of people.
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I cannot tell you specifics about how much tax you should owe, but if you do this exactly in the order I have explained, your state taxes will be correct.
To make this work you need to make sure some info in the federal entries is correct. Go to MY Info. At the bottom, it indicates if you earned income in another state. If that is not correct edit it stating that you worked in Indiana. Your W2 should have the correct info for the Indiana taxes withheld.
Then you want to complete the nonresident state return which would be Indiana. Make sure your residency is Reciprocal Nonresident (see screenshot). It will ask about residing in Kentucky. Most of the information will have already flowed to this return. It shouldn't take long to complete.
Now go to the Kentucky state return. You will be a Kentucky Resident. Did you earn income in another state? Credit is not allowed for reciprocal states.
If you were a full-year resident of Kentucky, Michigan, Ohio, Pennsylvania or Wisconsin, and your only income from Indiana was from wages, salaries, tips or commissions then you need to file Form IT-40RNR, Indiana Reciprocal Nonresident Individual Income Tax Return. The last form on the list: https://www.in.gov/dor/6281.htm
If you have more questions, please ask in the comment box below.
You are lucky to live in a reciprocal state. As a worker in a reciprocal state, you can fill out that state's exemption form and give it to your employer if you don't want them to withhold taxes for your work state. This will not help with 2018 but you might think about doing this for 2019:
On the Indiana IT-40RNR form it is asking the county in IN where I worked (I am a full time resident in KY). If I answer the IN county it calculates an amount I owe to Indiana; if I answer out of State KY it calculates zero (no tax) Bottom line- should I be paying an Indiana local county tax if I am a full time resident of KY. If the opposite were true and I lived in IN and was taxed by the KY locality then IN would allow me to take a credit for the KY local tax on the IN Tax form. Thanks!
The reciprocity agreement, between KY & IN on state taxes, does not apply to local city or county taxes. You can not get those refunded, but if you live in an KY city or county with an income tax, they may give you a credit or partial credit. Many do. You need to check with your city or county.
On the Indiana IT-40RNR form you must answer the IN county that you worked in.
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