Why does Illinois Department of Revenue say residents may not claim a credit for taxes paid in Wisconsin, when Turbo Tax forms allow for it?

[beanareeno]

TurboTax said I owe IL State $102, which I paid. Dept of Revenue now says I owe $380 plus penalty, when the $380 was withheld by Wisconsin. If that law changed, TT did not reflect it in the software. Now I'm paying a penalty and interest.

[Mike9241]

Illinois and Wisconsin have reciprocity which means you only pay income taxes in your resident state on wages earned in WI. you should have filed a WI return reporting none of your WI wages as taxable so you would get back  WI withholding. if you didn't you need to file an amended WI to get it back.

Submit exemption Form W-220 to your employer if you work in Wisconsin and are a resident of Illinois. This will stop WI w/h.

note: you also must make sure that your employer withholds IL taxes. if they won't you need to pay IL estimated taxes to avoid penalties for underpaying your taxes. 

you can file a claim against Turbotax for the penalties and interest.  however, if the error was due to a mistake on your part rather than a programming error the claim will be denied

https://ttlc.intuit.com/community/choosing-a-product/help/what-documents-do-i-need-to-submit-a-claim... 

[fanfare]

tax withheld is not the same as tax paid.

You only get a state credit for tax actually paid.

[TomD8]

Here's a link to Wisconsin form W-220:

https://www.revenue.wi.gov/TaxForms2017through2019/w-220.pdf

If you're an Illinois resident who works in Wisconsin, your W-2 wages or salary are not subject to Wisconsin income tax, but they are fully taxable by your home state of Illinois.  Since you pay no tax to Wisconsin, there is no "other state credit" to be had.

[sleshem]

Mike,

TurboTax populated the Wisconsin and Illinois forms automatically. What should have been marked to exempt me from paying Wisconsin taxes? It noted that I was not a Wisconsin resident on form NPR1 but they did not refund the majority of the taxes withheld.  On Illinois schedule CR TT calculated a credit that was entered on line 15 in the IL 1040. 

[TomD8]

If you’re an Illinois resident and a W2 employee who works in Wisconsin, your work income is not subject to Wisconsin income tax.  Therefore you cannot claim an “other state credit” from Illinois.

If Wisconsin taxes were mistakenly withheld from your pay, you must claim a refund by filing a non-resident Wisconsin tax return, on which you allocate ZERO income to Wisconsin.  This will result in Wisconsin refunding the incorrectly withheld taxes to you.

To stop the incorrect withholding, file Wisconsin Form W-220 with your employer.  A link was posted earlier in this thread.

[sleshem]

But I filled out the forms as non-resident in Wisconsin (NPR1) and the IL return allowed me to take a credit for taxes paid in other states. Where would I have indicated that none of my earnings in Wisconsin are subject to WI taxes?

[fanfare]

If you entered $380 as tax paid to Wisconsin, then you got a credit.

But that's just wrong.

Your Wisconsin tax was zero.

see my previous post, above.

[TomD8]

Line 1, column B of your Wisconsin 1NPR should show zero.

Line 59 should show your withheld Wisconsin taxes.

[Mike9241]

you should have your employer stop Wi withholding by submitting exemption Form IL-W-5-NR to your employer if you work in Illinois and are a resident of Iowa, Kentucky, Michigan, or Wisconsin.

I don't know if this was the issue but for the correct state credit calculations, you must do the non-resident state(s) first. with $0 tax liability on WI, there would have been no credit computed on IL.

IL and WI have a reciprocal agreement. you only get taxed in IL on wages earned in WI. 

so you should have paid tax in IL and gotten back all WI withholding if things had been done correctly

[sleshem]

Thank you again for your help here. I understand all of the above. In this case, the WI employer will not withhold IL taxes but only WI taxes. So, again, I completely get that the correct course of action would have been to show no wages in WI and, thus, have no credit to deduct from the IL taxes. With that, in our case, we still need to file taxes in WI each year because the employer will not withhold IL taxes and we want the refund of the WI taxes withheld. However, my specific question is where on the 1NPR form does one indicate there are no wages in Wisconsin? Is it right on line 1 column B? Because that is not what TT did.

[jan522]

I have this problem in reverse.  Full time WI resident but earned money in IL (and employer withheld IL tax).  I know that I need to get this fixed for the future.  But when filling out state taxes, IL is not showing a refund for what they withheld and WI is showing a balance due.   Basically, I am being double taxed on that income by the states.   How do I reflect a change to get a refund of the IL money withheld so that I can pay WI?

[DMarkM1]

Since IL taxes should not have been withheld due to the reciprocity agreement you should have been treated as not working in IL.  Therefore in the IL state interview, "Edit" the "Income" topic and continue to arrive at the page asking how much of the income did you earn working in IL.  You need to put a zero in that box.  This will make the income on your W2 not taxable in IL.