Regarding Missouri Income Allocations; Do I enter all of the MO state refund as Income from Missouri Sources?

[charjean47]

I am a non-resident of MO living in IL.  I received a MO state refund.  The Taxable State Refund from all sources is $526 on Turbo Tax.  Do I put $526 as Income from Missouri Sources even though I am not a resident?

[DanielV01 · Accepted solution]

You can, but it shouldn't be necessary to include this.  What should happen is that that "income" is subtracted from Missouri taxable income.  This is because it is a state refund.  The IRS does not tax you when you receive a Federal refund, and the state does not tax you when you receive a state refund.

Since you are an Illinois resident, and Illinois taxes all of your income, if Illinois taxes another state's refund when you have itemized on the Federal Return in the previous year (and I don't think they do), whether you allocate the incme to Missouri or not won't matter for Illinois.  But it won't be taxed in Missouri regardless.

[charjean47]

xx

[charjean47]

Earlier, I wrote a lengthy comment for you but My Brave and Safari would not let me comment to you because of security.  I tried to change security but got no where.  Don't know why I am able to comment now.  I was able to ask another question and posted my comment to you on that question.  I had to work it over because when I used line numbers the program thought I may be sharing private information.  Any way, maybe when I am not worn out, I will understand this a little better.   I am going to try and post my previous comment below:

I am having trouble understanding the whole picture because of my lack of experience with filing MO state taxes. This is the fourth time I am filing both states.  I am a non-resident of MO and live in IL.   I have used Turbo Tax for years just filing Federal and IL taxes.  Since 2015 MO employment,  I have filed the MO state returns by hand.  Just bought MO download for the first time yesterday because I begin questioning the MO 2018 return I had done by hand.  I do not know if I entered the MO refunds correctly on the MO returns.   I have tried a couple of different ways.  Now I AM THE ONE confusing myself because of the MO refunds.  I am tired of working on this, a little slow and don't want to give up now.  In the previous three years, all of the wages came from MO only.  This year there are wages from MO and IL.

Regarding the Federal 2018 return that I all already electronically filed:  When I did Federal 2018 using Turbo Tax, the MO 2017 refund was entered on Line 6, Additional Income Line 10, and Additional Income Line 22.  My logic was and here goes; Last year, I itemized state and local returns on the Federal 2017 return and received the refund in 2018 and Federal did not receive tax monies on the refund in 2017, so on the 2018 Federal return, the MO state refund and Federal wages are added together and that becomes the adjusted gross income.  That's fair.  Am I right?

I am still working on MO and IL state returns.

ILLINOIS RETURN:  When I finished IL 1040 2018 using Turbo Tax, before I downloaded MO Turbo Tax, IL had a refund; great.  Turbo Tax IL applied the exact amount of MO 2018 income taxes paid as stated on the 2018 W2.

After I downloaded MO state Turbo Tax, the IL refund was immediately changed to OWING different amounts depending on how/where I enter the 2017 MO refund on MO 2018 Turbo Tax.  The IL Turbo Tax program changed the W2's actual amount.  It subtracted the 2018 refund I will be getting in 2019. The MO 2018 refund is different amounts depending on how the MO 2017 refund is entered on MO Turbo Tax.  Why is IL Turbo Tax subtracting on the IL 2018 return the MO 2018 refund when it was not received in 2018?  Is this a mistake? So how will this MO 2018 refund be handled on 2019 returns since the refund monies are paid in 2019?  Should I override the IL 2018 Form and change the Income tax paid to another state as the amount shown on the 2018 W2 and then the return will show a refund of an amount depending on where the 2017 refund is entered on MO Turbo Tax.

Should the 2017 refund be entered on IL 1040 line 7, line 8, Schedule M Line 33 & 40 and on Step 3, Illinois Adjustments, Column A & Column B 39 & 40?

MISSOURI RETURN:   MO 2018 has a refund of an amount depending on HOW I enter the 2017 refund on MO Turbo Tax.  Should the refund go on Worksheet for Missouri Source Income, Part B, D & T, MO 1040 Income 4Y, MO-A Subtractions Part 1, 9Y & 18Y?

I thought Turbo Tax would place the MO 2017 refund in the right field and I would not have to make this decision myself as I did when doing by hand.  After, downloading the program, I still have to make the decision as to which field I should type the MO 2017 refund; whether the refund is a Missouri Source or not, etc.  I read the MO 1040 Instructions but am still at a loss over the refund.  

Copying, pasting and separating the above questions here:

Is Federal Return correct by adding 2017 refund to wages for adjusted gross income.

Why is IL Turbo Tax subtracting on the IL 2018 return the MO 2018 refund when it was not received in 2018?  Is this a mistake? So how will this MO 2018 refund be handled on 2019 returns since the refund monies are paid in 2019?  Should I override the IL 2018 Form and change the Income tax paid to another state as the amount shown on the 2018 W2 and then the return will show a refund of an amount depending on where the 2017 refund is entered on MO Turbo Tax.

Illinois:  Should the 2017 refund be entered on IL 1040 line 7, line 8, Schedule M Line 33 & 40 and on Step 3, Illinois Adjustments, Column A & Column B 39 & 40?

MISSOURI RETURN:   Should the refund go on Worksheet for Missouri Source Income, Part B, D & T, MO 1040 Income 4Y, MO-A Subtractions Part 1, 9Y & 18Y?

I purchased Turbo Tax 2018 Premier Federal, IL State and MO State.  I rate Turbo Tax and the Community HIGHLY.  My issues are with me not understanding and not with Turbo Tax that I would recommend to others.  Thank you for your time and help.

[charjean47]

TurboTax Daniel.  It worked.  So I had computer issues as well.  Thank you for taking the time to look this over.

[DanielV01]

I'm glad you found the solution.

[charjean47]

I found a solution to the computer issue but not my questions above.  I still do not know where to enter the 2017 MO refund on the IL or MO return.  Still don't know if it is an error why IL subtracted to MO 2018 refund when the refund will not be received in 2019.  Basically I don't know the answers to the above Tax questions.  I am still stuck.

[DanielV01]

What you are seeing on the Federal Return is correct and you understand it perfectly.  You itemized and used the full amount of Missouri tax to itemize, and so when you are refunded, you include the refund in your income along with your wages.  (A refund of 2017 taxes in 2018 is included in 2018 taxable income).  But this treatment only affects the Federal Return.

What you are seeing on your 2018 tax return for Illinois is the correct treatment.  Illinois does not give you a tax credit for the amount of tax withheld to Missouri, but rather gives a credit on the Missouri Tax Liability.  In essence, its the amount of tax withheld MINUS the tax refund.  (If you owed MO tax at the end of the year, the amount owed would be ADDED to the amount withheld).  That is the number that is the basis of the tax credit.  (I'm not 100% on the line numbers, but I hope this helps you).

What looks like might be the case is that the Illinois returns in prior years might not have been prepared correctly, because instead of reporting the amount withheld for the tax paid to other state credit, the amount should have been the tax withholding minus the tax refund.  Having said this, however:  do you pay a local tax (Box 19 on your W2)?

[charjean47]

Thank you.  Thanks to your help I realize what you said is true about the prior returns being done incorrectly.  548 was paid to local tax (St. Louis) in 2018.  What do I do about that?  I will pay for both state Turbo Tax in the future.  Guess I am learning a lot.  Thank you for your patience.

[charjean47]

TurboTax Daniel.  I just went on STL site.  Local taxes are 1%.  I think I do not have to file with the city because the employer withheld 1% (actually 87 cents more would be due).  The site mentions a form if the employer did not withhold.  Do you think I do not have to file?  I could call them tomorrow.  Thanks for looking into my problems above.  I printed your explanations for reference in the future.

[DanielV01]

No, you don't have to file, but you might be able to include the St. Louis taxes as part of your credit for taxes paid to another state for the Illinois return.  This can assist you to keep your Illinois refund.  Give me a few minutes and I'll give you additional information.

[DanielV01]

The question was to assist you further in your Illinois return.  In addition to allowing a credit for your state taxes, Illinois also allows you a credit for LOCAL taxes.  On the screen where you see the Missouri tax credit calculated, add the amount of tax that was withheld for St. Louis to the number TurboTax provided.  Illinois will ask for your W2 (they will anyways), but this will swing the Illinois return back in your favor.  You do not need to file a return for St. Louis.

[charjean47]

Why didn’t the Turbo Tax program add local taxes to Missouri tax credit?  I will have to override this.  Correct?  Thank you so much.

[DanielV01]

Local taxes are not accounted for in programming.   You will override the figure as long as Missouri didn't report them on the state tax return (I don't believe they do).

[charjean47]

From the beginning of doing the returns, I had the information from the W2 downloaded in the program so the city/local tax information is there for the program to pull from.