Filing state taxes over $1000. Since Kentucky Illinois are reciprocating states, shouldn’t he?

[user17581208237]

My fiancé works in the state of Kentucky, however, the business he works for is out of Illinois. He did not file his state taxes due to the confusion of which state he had to pay into. He has Illinois taxes, taken out of all of his checks. When we went to file his taxes, it showed that he was going to owe the state of Kentucky over $1000. Since Kentucky and Illinois are reciprocating states, shouldn’t he not have to pay Kentucky? He ended up filing for an extension, which at this point I believe has passed or is coming up. What does he need to do? 

[Cindy4]

Reciprocal agreements are a special type of tax treaty between states. They allow residents who work in a neighboring state to only pay state income tax to their state of residence, not the state where they work. Since your fiancé lives in Kentucky, he only owes state income tax to Kentucky. The Illinois taxes that were withheld from his checks should be refunded to him.  In TurboTax he should complete his IL non-resident first, and then complete his KY resident return.  He will still owe the KY tax, but get a refund from IL.  Please consider filing an IL-W-5-NR with his employer.  

Hope this helps!

Cindy

[Katie-P]

It's unclear to me from the question whether your fiancé is a resident of Kentucky or Illinois or perhaps some other state. But I am assuming that he is a resident of Kentucky. If TurboTax is showing that he owes money to Kentucky, then that is likely correct for the 2024 return. The reason why is because he never had any state withholding taken out for Kentucky.

Again, assuming I've gotten his resident state correctly identified as Kentucky, he needs to go into the Personal Info section of TurboTax and indicate that he did earn money in another state: Illinois.

Then he needs to go to the State Tax Return section, and TurboTax should prompt him to add an IL tax return. On that return, he should get a refund of everything he had withheld to IL on his W-2.

So the end result is that he'll owe Kentucky because he didn't pay them any withholding all year, and he'll get a refund of everything he paid to Illinois.

Now, going forward, he needs to get this corrected by filing Form IL-W-5-NR with his employer; the purpose of this form is to show them that he should not have IL taxes taken out anymore; the withholding should go to KY. 

Note that he will still run into the issue on the 2025 tax return he files next year. Meaning he will have to file for a refund on an IL state tax return, but he'll likely owe again on the KY return. But starting in 2026, this should no longer be an issue.

If I have incorrectly assumed that he is KY resident, please let me know.