Contributed by PhillipB, FreeTaxUSA Agent, TaxPro
Why claim the credit for taxes paid to another state?
When you live in one state and work in another, all that income is taxable in both your resident state and the other state (unless your working state has a reciprocal agreement with your resident state). To help with this double taxation, you can claim a credit on your resident return for the taxes paid to the other state where you work.
Follow these steps to report your income properly and receive a credit for taxes paid to another state on your resident state return:
- Go through the entire home state return.
- You can skip the section labeled Taxes Paid to Another State since you will not be able to complete this section accurately. The software will have estimates for this section, but you will need to correct any entries after the other return has been completed.
- Complete the other state return.
- Follow the menu path: State > Click on your state > Taxes Paid to Another State
- Enter the needed information for your nonresident state. Refer to the chart below to record information from your non-resident state tax summary screen before filling out the information for your resident state return.
Once this information has been entered, your resident state return will include a credit for taxes paid to your non-resident state, eliminating double taxation of your income by both states.
Items generally needed on resident state returns to claim this credit:
- The portion of total income that is being taxed by both states (sometimes the state wants the portion of the AGI or taxable income).
- The portion of taxable income that was taxed by both states
- The total tax that was due (and some states want to know what has been paid) to the nonresident return.
- The amount of tax withheld on the other states’ return
- Any refunds from the nonresident return.
