SC resident working remotely for IN company

[BradInSC]

My wife and I are SC residents, but we both worked remotely all of 2020 for an IN organization. The W-2s show money withheld for IN only. In using TurboTax Deluxe, I completed state tax returns for both IN and SC. On the IN interview when asked how much of the $XX did I earn while working in IN, I said $0 (because I was working in SC the entire time). That basically is getting me all of the IN tax withholding back as a refund. On my SC interview when asked about double-taxed income, I entered the full income earned from IN employer, and for the tax paid to IN on double-taxed income, I entered all IN state and local taxes withheld. That reduced my SC tax burden considerably. However, if on the IN tax return, I'm basically getting all state and local taxes withheld back, should I have not answered the SC double-taxed income and taxes paid as I did? I'm unsure of the best way to handle my tax liability in IN vs SC to reduce my overall taxes.

I did two variations that had large differences in my net taxes. 1) I changed my response in the IN interview to say all of the earnings were while I worked in IN, so I paid all of the taxes to IN. Then for the SC return, the double taxing questions were the same as before. 2) I kept the IN interview response as $0 of the earnings were while working in IN, so I will get all of the IN taxes withheld back. Then for SC, I changed the double-taxed income and taxes questions to 0, which added a huge tax liability to my SC tax return. The first variation has a ~$2200 HIGHER overall tax liability than the second variation. I need to know if I can do either or if one is correct and the other one incorrect or could cause issues?

[AnnetteB6]

Based on the information you shared, your non-resident Indiana return is correct.  Even though there was Indiana state tax withheld, none of the income was taxed by Indiana because you performed all of your work in South Carolina.

If you completed the Indiana return first, then the credit for taxes paid to another state should have populated automatically showing that no actual taxes were paid to Indiana.  You should revisit that section of your South Carolina return because there will be no credit for double-taxed income in your situation.  Only South Carolina will tax the income because you were a resident of South Carolina and performed all of your work there.  The income would have been double-taxed if you had worked in Indiana while living in South Carolina.

This means that you will have a balance due for the South Carolina return since there were no state taxes withheld from your wages for that state. 

If your situation remains the same for 2021, you should request that your employer change the withholding to South Carolina instead of Indiana.

[TomD8]

If your situation is the same this year, and your employer cannot withhold SC taxes for you, then you should make quarterly estimated tax payments to SC for 2021 so as to avoid another large tax bill next year as well as any possible penalties or interest.

This link contains both the instructions for making those payments online and the necessary forms if you prefer to pay by check:

https://dor.sc.gov/forms-site/Forms/SC1040ES_2021.pdf

It's expected that you'd have a large 2020 tax bill for SC because all your income was taxable by SC and no SC taxes were withheld from your pay.  Nor are you eligible for any credit for IN because in effect you paid no taxes to IN (the withheld IN taxes are fully refundable).