I live in Indiana, but I work in Illinois. My job takes out Indiana state taxes, not Illinois taxes. Do I have to file as a nonresident of Illinois?

[DS30 · Accepted solution]

Unfortunately yes. If you earned wages in IL but are a resident of IN, your income will be considered IL-source income and you would need to report this income on an IL nonresident state income tax return. You will want to contact your IL employer regarding your state withholdings. (IN and IL do not have a wage reciprocal agreement.)

You will also need to file a IN resident state tax return (for all income from all sources including IL income). You will get a state income tax credit in IN for any IL state income taxes that you paid on your nonresident IL state income tax return.

You will want to work on your nonresident IL state income tax return first. You will then take a tax credit from your nonresident IL state income taxes on your resident IN state income tax return. (Please note that you will only get a tax credit for your IL state income taxes up to the amount of IN state income taxes that would have been paid if the income was earned in IN).  The credit for taxes paid to another state section will be at the end of your residence state's interview process.

Just follow the TurboTax guide when working on your states (remembering to do your nonresident state return first) and TurboTax will do all the calculations and credits to your resident states return

Here is additional information about filing in multiple states (select "see more answer" to view the entire attachment)

https://ttlc.intuit.com/replies/3300797

[hillcm91]

Thanks so much!

[DS30]

You are very welcome.

[AOlandezos]

This all makes sense so thank you because I am in the same situation. My question is regarding County tax. Last year I filed this way and ended up owing 1.5% of my income(Lake County Tax) to Indiana. Is my IL employer supposed to take this out of my paycheck? Is there any sort of credit? Or am I to pay this in a lump some to Indiana every year I file my taxes? Thanks in advance.

[snowcanyon]

I used TurboTax after I moved from IL to IN and purchased both IL and IN State Tax returns. 

Unfortunately, while the IL tax return was accurate, the IN return that copied supposedly IL values over to the IN return messed up completely. I made multiple calls to TurboTax and nobody had any idea how IN State returns work. Needless to say I got double charged, and in the Turbo Tax software still cannot find a way to file an amendment. Stinks to high heaven. But if you have this situation I think you are better off getting an actual accountant to teach you how to do it manually. Safe yourselves the hassle. 

[kth899]

As far as living in IN and working in IL yes, you want to ask your payroll to PLEASE take out your Indiana's county taxes (for me it is Lake County, IN). If they look at you all confused, you could try handing them this, having filled out all of your portions first.  Good luck. https://hr.vanderbilt.edu/forms/IndianaWH-4.pdf

[DJLieu]

I have the exact same problem. TurboTax claims that there should be a tax credit if you had to pay state taxes in Illinois if you live in Indiana. I am not finding where I was given such a tax credit and I had to pay the full state taxes for both states. Where does this tax credit appear on the actual form for the State of Indiana? I also can not find an answer as to why there is no reciprocity between Illinois and Indiana when they have it with all of their other neighboring states. This is ridiculous!!! 

[DMarkM1]

For Indiana, the credit for taxes paid to other states is an "offset credit" found on line 13 of the IN form IT-40.  The amount on that line comes from Schedule 6.  Line 5 on Schedule 6 is where the credit initially shows up.   

Only the state governments have the answer to who they make agreements with and why.    

[TomD8]

@DJLieu --  In order for the credit to be calculated and applied properly in TurboTax, you must complete your non-resident IL tax return before you do your home state IN tax return.

[DJLieu]

Thanks. I did complete the Illinois (Non-resident) form prior to doing Indiana.  

I decided I am just going to do an Amended Indiana form because I have already sent in my Indiana taxes and paid the bill. I had no idea about the tax credit until today. Unfortunately, Turbo Tax does not offer an easy way to do an amended State form so I will have to do a paper form.

Thanks for all of the help. I really do appreciate it.

[mjm8808]

Hey DJ -

I just went through the exact same experience with TurboTax. Never got prompted about the tax credit and didn't learn about it until after I filed. 

1. Were you able to resolve this with an amended state form (IT-40X)?

2. On the amended state form, did you just enter a credit for the amount that your previously owed on line 13 & attach your Illinois return? Anything else?

Thanks!

[JillS56]

Please clarify your question.   Are you referring to the credit for paying tax in one state and it should have been to another state?    

[mjm8808]

Hi Jill -

I filed two state tax returns, one for IL (where I work) and one for IN (where I live). My understanding is that a credit should have been applied to my Indiana return based on the IL state deductions taken from my paycheck. Do I have that right?

[ErnieS0]

Yes. The other state tax credit is applied to the resident state return. If you work in Illinois but live in Indiana then you can claim a credit for Illinois tax paid on your Indiana tax return.

The deduction is not based on your withholding, but ono the actual tax you paid to Illinois.

TurboTax will put in the right number is you prepare your nonresident Illinois tax return first.