I live in Nebraska, but work in Iowa. Do I need to file state returns for both?

[DS30]

Yes -

If you are a permanent resident of NE but work in IA, then you will need to file an IA nonresident state income tax return (for your IA source income only - your IA wages). You will also need to file a NE resident state tax return (for all income from all sources including IA wages). You will get a state income tax credit in NE for any IA state income taxes that you paid on your nonresident IA state income tax return.

You will want to work on your nonresident IA state income tax return first. You will then take a tax credit from your nonresident IA state income taxes on your resident NE state income tax return. (Please note that you will only get a tax credit for your IA state income taxes up to the amount of NE state income taxes that would have been paid if the income was earned in NE).  The credit for taxes paid to another state section will be at the end of your residence state's interview process.

Just follow the TurboTax guide when working on your states (remembering to do your nonresident state return first) and TurboTax will do all the calculations and credits to your resident states return.

Here is additional information about filing in multiple states (select "see more answer" to view the entire attachment)

https://ttlc.intuit.com/replies/3300797

[Arshille]

I am also a resident of NE. I receive S Corp Income from the same source, some is IA and some is NE. I do not earn W2 wages in IA. I understand that I should reduce my Fed AGI by the IA portion of the S Corp income when determining my NE taxable income. My question is concerning the credit for tax paid in IA, can I also receive that credit from NE, or does the credit only apply to taxes paid on W2 wages in another state?

[DianeW777]

Yes.  The credit for taxes paid to a nonresident state can be used on your resident state return.  Any income that is received must be taxed by your resident state.  When you must also pay tax to another state because the money was earned in that state, the nonresident state wants the tax dollars on those earnings.  

To be clear - your statement copied here should end with IA taxable income. "I understand that I should reduce my Fed AGI by the IA portion of the S Corp income when determining my NE taxable income"

The resident state does not want you to pay taxes on the same income twice.  For this reason they provide a credit which will equal the lesser of:

1. the amount of tax liability that you actually paid to the nonresident state, or
2. the tax that would have been charged by your resident state

Be sure to prepare the nonresident state first, then your resident state last.