Interest and dividend income reporting to SC while working in NC

[spark-co2]

I earn my W2 income in NC while I reside in SC, and have some interest and dividend income as well.

While filing out SC taxes, SC deducts dependent exemption from my total federal gross salary. This amount is lower than my W2 income. Now, SC form 1040 TC asks , "Portion of line 1 taxed by another state".. TurboTax is putting my NC W2 salary there, and since that is higher than my SC geoss salary, my SC taxes are showing as $0.

However, since I do have some interest and dividend income,

where and how do I show that to SC, so that it gets taxed appropriately for the resident state.

[AnnetteB6]

The starting point for the SC tax return is your Federal Taxable Income.  The Federal taxable income includes your interest and dividend income already.  So there is nothing you need to do to be sure that you are reporting that income to SC because it is already included.

Based on your description of your situation, everything sounds correct if your income was earned in NC.  The credit for taxes paid to another state could reduce your SC taxes to zero.  

[edited 2/9/2025 | 1:32 pm PST]

@spark-co2 

[spark-co2]

Thanks for the detailed explanation.

For my simplistic mind, I have included some dummy numbers below:

• Federal gross salary including W2 and interest/dividend: 100,000
• W2 salary while working in NC as non resident: 95,000
• Interest and dividend income: 5,000

Now, when SC 1040TC gets calculated for credit paid on taxes paid to other state, below information shows up:

• Line 1 is SC gross income after dependent deduction: 89,000
• Portion of line 1 taxed by another state: 95,000 (NC W2 income)

Because W2 salary is higher than the SC gross income, SC taxes are showing up as $0.

However, I am failing to understand that how and where SC state tax for resident on interest and dividend of $5000 is being paid.

[AnnetteB6 · Accepted solution]

Let me correct the statement I made earlier regarding the starting point for the SC tax return (I will also correct that answer).  The SC tax return starts with your Federal taxable income, not the Federal AGI.  With your example, that would mean that the SC return would start with $100,000 minus your standard deduction based on filing status (say $14,600 for Single for this example).  

So the SC Form 1040 line 1 would be $85,400.  That number takes into account all of your income that was reported on your Federal return which includes your W-2 income (earned in NC) and your interest and dividends.  The SC tax return is taking all of your income into account on line 1 of the SC 1040.  

Then that SC income from line 1 of the SC 1040 is further reduced for your dependent exemption allowed by the state.  

The SC income tax on your taxable SC income should be shown on SC 1040 line 10.  This tax would include any SC tax on your interest and dividends.  However, that tax amount is then reduced by the tax credit for paying NC tax on your wages.  

You have met your SC tax obligation by reporting all of your income.

@spark-co2