Amending state exemptions after a move, new baby, and lose of wife's income

[JimmyG8]

In 2023, we had a baby. We decided my wife would stay home so we only have my income now. We also moved from Illinois to Indiana. But, I still work in Illinois (though remotely). What is the best way to restructure my state exemptions in both Illinois AND Indiana since there is no reciprocity and I'm required to file both?

[rjs]

Are you actually working remotely IN Illinois, or are you working in Indiana for a company that is located in Illinois? If you are doing the work in Indiana, you are not working in Illinois. What matters is where you do the work, not where your employer is located.

If you are working in Indiana, your employer should stop withholding Illinois tax, and withhold Indiana tax if possible. For the year that you moved you will have to file part-year resident tax returns in both states, but in subsequent years you will file only in Indiana. If your employer will not withhold Indiana tax you will have to make estimated tax payments to Indiana.

If you actually do work in Illinois, or if you work mostly in Indiana but occasionally go to the company location in Illinois, it gets a little more complicated. If this is your situation, provide more details.

[JimmyG8]

Thank you for the reply! Unfortunately, my situation is more the latter where I will occasionally go to the office in Chicago (approx. 1-2 times a month). Prior to the pandemic, I was in the office everyday. And we currently live in an area where it is very common to commute to Chicago. It takes around 60-90 mins. However, in the post-covid world, we are no longer required to be in the office. 

In my opinion, my situation is no different than if I lived in a different part of the country and traveled to our HQ 1-2 a month, which some do. I can pretty much guarantee people don't report Illinois income in those cases. 

[rjs]

You may be right about what other people do, but it's not legal. The money that you are paid for the days that you work in Chicago is Illinois source income. You have to file an Illinois nonresident tax return and pay Illinois tax on your Illinois source income. On your Indiana resident tax return you have to report all of your income, no matter where it is from. You will get a credit on your Indiana resident tax return for part or all of the tax that you pay to Illinois.

Your W-2 should have two lines of state information, one line for each state. The state wages in box 16 on each line should be the amount you earned for the time that you worked in that state.

Since you have to pay tax to both states, it would be helpful if your employer withholds tax for both states.