You might be trying to file the wrong return. Instead of a Nonresident return, you should be filing a nonresident reciprocal return. This gives you a refund of state taxes withheld.
However, Indiana local taxes are another story. They are not covered by the reciprocal agreement, and even the Indiana reciprocal return accounts for county/local taxes you pay or should pay to Indiana. However, Michigan will allow you to claim a credit on local taxes withheld by an Indiana county, as mentioned in this website: Michigan Credit for Taxes Paid to Government Units Outside of Michigan
To do this:
- On the Michigan resident return, keep navigating until you reach the screen Take a look at Michigan credits and taxes.
- On that screen, scroll down to Other credits, and click Start on Other State Tax Credit.
- The next screen asks Qualify for the Other State Tax Credit? The answer is YES, even though the screen says you cannot claim a credit for taxes you paid to a reciprocal state.
- On the next screen, Other State, click on the drop down box. The first selection is "City/county/locality outside Michigan". Choose that and hit Continue
You may have to input manually the amount of tax you paid to the Indiana county, and on how much income you paid the tax, but this will be credited to you on your Michigan return. The manual amount would be the remaining portion of the $1011 that you are not getting refunded, because that amount would be local taxes that Indiana is not refunding you.
Although you won't get a direct refund from Indiana for these taxes, it will lower your Michigan tax and be added on to the Michigan refund.
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