How to file state tax when spouses work in different states and move together to a thrid state?

[yykathy_QA]

I worked and lived in MI 1st half of 2019, while my spouse worked and lived in WI. Then we moved together to IL, I worked in IL and my spouse still worked in WI. My spouse filed a form with WI not to withhold state tax 2 months later after we moved to IL. My understanding, I file part year resident of MI and IL and my spouse files part year resident of WI and IL. Does my spouse have to file non-resident of WI for the later half year? Can we file IL state tax together since we lived together? The tricky part is we worked in different states of IL and WI which are reciprocal states. I hope TurboTax will guide me through based on my personal information.

[MaryK4]

How you  file on the federal return will affect how you can file on the state tax returns and vice versa.

In your case, I would file Joint on the federal.  You would then have to file Joint on Michigan, but apply the credit for tax paid to WI for your spouse's income.  Wisconsin- you can file as joint and get a credit for the MI tax you paid.  She would not include the WI income earned while a IL resident under the reciprocity agreement.  Part Year Illinois Joint- include all income while resident (under reciprocity agreement)

The rules that apply are:

MICHIGAN

If a joint federal return was filed, the Michigan return must be married filing jointly.

If the federal return was Married Filing Separately, the Michigan return can be MFS or MFJ

ILLINOIS

Illinois requires the same filing status used on the federal return-if a MFJ Illinois return is filed, both spouses are treated as residents. This election is irrevocable for the tax year. Credit is allowed for income tax paid to another state.

WISCONSIN 

You can choose your filing status for Wisconsin- however, if you file separate on the federal return, community property laws apply.

[yykathy_QA]

MaryK,

I really appreciate your expert instruction. I have more Q, Remember reading TurboTax instruction, I should file Federal married file jointly and then state separately. I don't understand why we need to file MI jointly, my spouse did not have income and did not live in MI. Same for me, I did not have income in WI and did not live in WI. Should we just file part year for Mi and WI for each individual and then file joint for IL.

Thank you again!

[MaryK4]

Unfortunately, each state has its own laws that apply to taxes so they are not always uniform.  Even though you did not live or work in Wisconsin, because Wisconsin is a community property state and your spouse lived and worked there, you must each claim one half of the WI income.  This means you would have to file the Wisconsin return as a Nonresident and report half and she would file a Resident return and report half so it would be easier to file the joint return so your income is nonresident and not taxed by Wisconsin.  

Michigan law requires the same filing status as the federal if one spouse is resident, so all income would be taxed in Michigan.  If you file the Wisconsin state tax return as Joint, you can at least get a credit for the taxes paid to Wisconsin.  

This is the best way to minimize your taxes in your situation- otherwise you do end up paying double tax on some of the income.

@yykathy_QA