Reciprocal state issues . . . question below . . .

My permanent residence was Illinois, but I worked in Wisconsin part of the year, which is a reciprocal state. However, I have a W2 for both Illinois and Wisconsin showing income in both states and state taxes were withheld for both states. Will I have to file state income tax returns for both states? When I complete both state tax forms, I owe Illinois a good deal of money. What am I doing wrong?"

posted

Because you had state income taxes withheld in both IL and WI, you will need to file a tax return in both states.Your WI taxes should be refunded to you. Your IL return has a balance due because IL tax is calculated on your entire income (both IL and WI). You can file your WI tax return now, set up your IL tax to be paid as late as possible and then pay your IL tax with your WI refund.

To avoid this situation in the future, you need to complete a Form W-220, Nonresident Employee's Withholding Reciprocity Declaration with your Wisconsin employer to stop the withholding of Wisconsin income tax from your wages.