MI/IL Tax Return

[rossnash]

I work in Illinois but am a full time Michigan resident. When I fill out the MI tax return, I am paying the full tax rate on my income in Michigan. I have taxes withheld by my employer in Illinois and Michigan. When I fill out the Illinois non-resident tax form, it also requires that I pay the full state tax amount on the same income. Since Illinois and Michigan have a reciprocal tax agreement, I thought I would only pay income tax in Michigan. Why am I double taxed on this income?

[JotikaT2]

You are correct.  Michigan and Illinois have state reciprocity.

What is state reciprocity

However, your employer should not be withholding any state income taxes for Illinois.  The state reciprocity allows you to report all of your wages within Michigan and only pay taxes there.

If your employer is still withholding taxes in Illinois, complete and submit the form in the link below to your employer to ensure they only withhold state income taxes for Michigan.

Illinois state reciprocity withholding form

For 2020, since you had income taxes withheld from both states, you will need to prepare a Nonresident state income tax return for Illinois, and a Resident state income tax return for Michigan.

If you follow/review the steps below, your return will calculate the credit in Michigan for any taxes paid in Illinois on the same income.  

To ensure your return is calculated correctly, you will need to confirm a few items: 

In the My Info section of TurboTax, confirm that you have entered the correct state information: 

1. Click Edit to the right of your name 
2. Confirm your input under #2 Tell us the state(s) you lived in
3. Go back to the personal information section, and verify the mailing address and "Other state income" section.  Be sure to answer yes to the question asking "Did you make money in any other states?". 

Please note the following as it will affect the calculations: 

Make sure you prepare the Nonresident Illinois state tax returns first.   Be sure to answer the questions correctly to ensure only income sourced to that state specifically are reported.

Once you have entered all of the nonresident state information, then start your Michigan resident state tax return.  This will ensure you receive any credits for taxes on income which may have been taxed in Illinois. 

Proceed through the screens in your Michigan return until you see Take a look at Michigan credits and taxes. You should see Taxes Paid to Another State under the Credit for Taxes paid.   You can edit your information here if needed but the taxes paid to the other state should be listed in this section.

[DProgress]

I have the same situation.  If I entered my Michigan resident tax information before my Illinois non-resident tax information, how do I reverse this?  Do I have to start all over?   Isn't this a bug in Turbotax that ought to be corrected?  My Michigan information has never changed from past years whereas the Illinois non-resident situation is something new that has been added this year. 

[MaryK4]

You do not have to start again- just do the nonresident Illinois return THEN go back through the Michigan return.  Because you get a credit in your RESIDENT state for the nonresident tax paid, TurboTax does not know how much the NONRESIDENT tax for the credit is until you do the nonresident return.  

@DProgress

[DProgress]

This is not working.  $150 was withheld in Michigan (4.25%) for work in Michigan.  $480 was withheld in Illinois(4.95%) for work in Illinois.  My initial results were an additional $210 to be paid to Michigan and an $84 refund from Illinois.  Shouldn't I be getting a $480 refund from Illinois and paying some additional amount to Michigan?   Instead of current withholding of $630, I'm out $756.  I need the refund from Illinois to pay Michigan but the  "Other State Tax Credit" does not allow an entry for Illinois, even though it is a reciprocity state.

[AmyC]

I think you are a MI resident based on your saying you think you should pay MI. They are reciprocal states. If you work in IL, you should fill out IL-W-5-NR and give it to your employer to take out MI tax instead of IL tax. See Reciprocal Agreement for more information.

Since IL was taken, we need to correct the situation. Your resident state taxes all income but gives a credit for income taxed by another state.  Please carefully follow these directions.

You will need to prepare the states in a special order. You may need to delete both states and begin again.

1. First, prepare your non-resident  return. This creates your tax liability for the non-resident state. How do I file a nonresident state return?
2. THEN prepare your resident state return and it will generate a credit for your income already being taxed in the non-resident state.
3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.