Unable to efile our state taxes because withholding on one state is greater than money earned in that state.

[wwinn2736]

We live in Iowa but my wife works in Nebraska. We have to file state taxes in both states and receive a credit for taxes paid in Nebraska toward Iowa taxes. He employer withholds Iowa taxes from her income but none of her income comes from an Iowa source, so the W-2 shows her Iowa income as zero. When we try to e-file in either state, it is denied because of this zero income in our home state on the W-2. I've had this issue for several years now and have always ended up having to file paper returns for both states.

[SteamTrain]

.....what might be the easiest option..?

See if she can get the NE employer to stop withholding IA taxes.

Then increase your own IA withholding a bit (At what I presume is an IA employer)

Why are they doing the IA withholding at all?...perhaps because the IA marginal tax rate is higher than NE's for a couple's combined income above ~49,000, and some extra IA withholding would help out with that.

..or...is she telecommuting part-time from home in IA?

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