State Taxes

[shallmann]

I live in Indiana, and work in Kentucky.  Do I have to file state taxes with Kentucky?

[JamesG1 · Accepted solution]

No, you do not.  Indiana and Kentucky have a reciprocal agreement.  

If you live in Indiana and work in Kentucky, you not required to file a Kentucky income tax return if your only income is from wages and salaries.  Further, your Kentucky employer is able to withhold Indiana income taxes from your taxable income.

Be advised that Kentucky cities and counties may assess a local tax that is reported in boxes 18 through 20 on your W-2.

[shallmann]

TurboTax should not offer the option for me to file in Kentucky when I don't have to.  I paid an extra $20 to file Kentucky taxes when I don't have to.  I pay for TurboTax to figure these kinds of things out for me. 

[DawnC]

Did you have the reciprocity agreement set up with your employer during 2023?   If so, you can avoid filing a nonresident return.   However, generally, you’ll need to file a nonresident state return if you made money from sources in a state you don’t live in.

Some examples are:

• Wages or income you earned while working in that state
• Out-of-state rental income, gambling winnings, or profits from property sales
• S corporation or partnership income
• Beneficiary income from a trust or estate
• For active duty military: non-military income earned outside your state of legal residence
• If your employer withheld taxes for the wrong state

You won't need to file a nonresident return if:

• You only have interest income from an out-of-state bank account.
• The other state doesn't collect income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, or Wyoming).

In these cases, you'll still need to report that income on your resident state return (assuming your resident state collects income tax) as well as your federal return.

Every state has its own rules regarding nonresident returns. Check your state's Department of Revenue website for specific details.

[shallmann]

Thanks for your response!  I do not have to pay state taxes in Kentucky, as Indiana and Kentucky have the reciprocal agreement.  The problem is TurboTax tax offering the option to file taxes in Kentucky, when I don't have to.  VERY misleading.  I paid an extra $20 to file in Kentucky when I dont have to. I would think the software would not even offer that option, that's why I paid for it, to figure those types of things out for me.  I'd be better off using a local tax service. H & R Block is suddenly looking more attractive....