Unemployment income from another state

[booshebach1]

I am a resident of AZ and received unemployment income from IL in 2020. Can I declare the income on my AZ return which is a lower rate or have to file IL return? If IL do I get a credit on AZ taxes?

[JotikaT2]

Since your unemployment income is issued by Illinois, you will need to file a nonresident IL state income tax return.  

Illinois unemployment

On your Arizona resident tax return, you will be able to claim a credit for any taxes paid in Illinois to ensure the same income is not taxed twice.

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: 

When you are preparing more than one state return, 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 Arizona state tax return.  This will ensure you receive any credits for taxes on income which may have been taxed in Illinois. 

[booshebach1]

Hi,

So when the numbers are plugged in I am still being taxed for AZ tax on entire overall income including IL G1099 income. According to AZ form 309, AZ is also not allowing a dollar for dollar credit for IL tax paid , only a fraction which is the IL taxable income divided by total income for both states. Of the $1079 tax for IL the AZ credit is only $463. Plus turbo tax calculated the AZ taxes with the same IL income from federal return without reducing or subtracting the portion of income from IL. Am I entering something wrong in interview, it seems I am paying twice on same IL income in AZ?

[DianeW777]

The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  As the resident state all worldwide income must be included.  The credit allowed is the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by the resident state

For Illinois (IL) the unemployment is fully taxable on your nonresident return. Here is information from the IL Department of Revenue:

• Illinois law provides that unemployment compensation paid by the Illinois Department of Employment Security to a nonresident of Illinois is taxable to Illinois.

Make sure you have selected 'nonresident' for the AZ return and you will see all of the income from your federal return, then a Schedule NR will be part of your IL return.  This will prorate the income and then arrive at a percentage of total tax that applies to only the IL income. For this reason it may appear as though you are paying tax on all of the income, when in fact it is a prorated percentage of tax.

[booshebach1]

I received under 10k in unemployment income from IL as a full time AZ resident.  I am filing an IL NR return for the income. AZ rep informed me on phone to deduct out of state unemployment income for 2021 (not taxable in AZ) but it transferred over from federal form to AZ state return on AZ140 form. Would I subtract this portion from subtractions to AZ income on form 140 line S in order to exclude it or elsewhere? I am filing IL return for the income on 1099G and a tax credit for tax paid to another state on AZ return. Not sure how to subtract this unemployment income through turbo tax on my AZ return since I can't override gross income in Turbotax. 

[ErnieS0]

There is no subtraction. Unemployment benefits are taxable in Arizona with the exception of railroad unemployment benefits and railroad sickness payments paid by the Railroad Retirement Board;

You can claim a credit for tax paid to Illinois on your Arizona return.

2021 Resident Personal Income Tax Return

Arizona did follow federal law in 2020 and allowed you to subtract the first $10,200 of unemployment benefits but that was a one year deal for federal and state.