TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Community

MaxRLC

Solved

State Income Tax Withheld - Credit to Other State

Forum|Forum|3 years ago
April 9, 2023
2 replies
0 views

Want to ensure Turbo Tax is asking the correct question.

Taxpayer resides and works in Idaho from January 1, 2022 through April 30, 2022.

For the period May 1, 2022 through December 31, 2022, taxpayer is residing and working in North Carolina.

Idaho - Part Year

North Carolina - Part Year

Turbo Tax correctly allocates the income for purposes of identifying taxable income for both state tax returns.

However,

Turbo Tax is indicating that the income tax withheld in Idaho while working in Idaho can be a "credit" on the North Carolina Part Year tax return. And, accordingly, the state income tax withheld in North Carolina can be a "credit" on the Idaho Part Year tax return.

Is that correct?

Despite the taxpayer moving to North Carolina on May 1, 2022, the amount of state income tax withheld in North Carolina employment can be a "credit" on the Idaho return?

Two Part Year State Returns: Idaho and North Carolina

Idaho State Income Tax Withheld

North Carolina Income Tax Withheld

Again, the state tax withheld in each state can be a credit on the other state tax return (despite moving away and not returning)?

Best answer by SteamTrain

No...you had it right to begin with...Part-year resident ID and part-year resident NC......assuming you moved from ID-to-NC on a more-or-less permanent basis...for the forseeable future.

As to taking a credit for taxes paid to the other state....NO...if you changed jobs, there is not normally a credit for you to take.

A credit is taken only if you moved to NC, but still have income from ID (other than a late paycheck)....like if you moved to NC, but have a business still operating in ID, or if you are receiving $$ form a rental property or farm that remains in ID. And then the double-taxed income is only those $$ that ID is taxing after you moved to NC.

Same thing the other way around...did you earn $$ from NC BEFORE you moved out of ID......and then only those NC $$ taxed by ID before you moved to NC are eligible for the credit.

____________

Credit for taxes paid to another state are usually only something to deal with for a full-year resident who crosses a local border to work daily in another state...or perhaps goes to a different state to work during the summer months and doesn't actually move his/her home residence.

LindaS5247

You should be filing a resident (NC) and a nonresident tax return (NC). It is very important that you enter your nonresident return first.

It is recommended to prepare the nonresident state first because your resident state will provide you a credit for the tax you pay to the nonresident state. By preparing the nonresident state first, TurboTax can transfer the credit information to your resident state to return.

So this should be calculated for you. Is this how you entered your returns. If so, it should be calculated properly by TurboTax.

Click here for "How to file if I moved to a different state last year."

Click here for instructions on how to file your nonresident return.

Click here for information regarding filing multiple states returns.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

MaxRLCAuthor

Hi!

Turbo Tax asks for the number of months lived in each state.

First four months in Idaho and remaining eight months in North Carolina.

The North Carolina return (when viewing Forms indicates Form D-400, North Carolina Individual Tax Return.

On this form is the following question:

Were you a resident of N.C. for the entire year? Answer: NO

From that point on, the NC returns calculates a percentage to identify the correct NC taxable income.

After that, it identifies the tax credit (tax paid to Idaho) and offsets that with the amount of total NC state withholding - resulting in a refund.

Idaho, on the other hand, identifies Form 43, Part-Year Resident and Nonresident Income Tax Return.

Your reply indicated to prepare a Non-Resident North Carolina and then a Resident North Carolina?

Why not just prepare Idaho first, then North Carolina. Seems to be Turbo Tax would then identify the correct amount of credit for each state return. Yes?

LindaS5247

You would prepare a nonresident return for Idaho, and a resident return for North Carolina. Sorry, I had the states confused and when I fixed it I didn't change the nonresident to Idaho.

You would enter your nonresident state return first.

Some states have different rules on how they account for the credit. This sounds like it is apportioning your income for credit, and this is the correct way to do it for your state.

There are generally two ways reciprocal agreements between states work:

Income not taxed at source: both states tax the income, but the state of residence offers the credit.
Reverse credit states: both states tax the income, but the nonresident state offers the credit.

A tax credit is allowed to an individual who is a resident of North Carolina for tax imposed by and paid to another state or country on income that is also taxed by North Carolina, subject to the following conditions:

The income must have been derived from sources in the other state or country and must have been taxed under the laws of the state or country, regardless of the legal residence of the taxpayer.
The credit allowable is the smaller of either the net tax paid to the other state or country on income also taxed by North Carolina or the product obtained by multiplying the North Carolina tax computed before the credit by a fraction in which the numerator is the part of the North Carolina income, as adjusted, which is taxed in the other state or country and the denominator is the total income as adjusted, received while a resident of North Carolina. If credits are claimed for taxes paid to more than one state or country, a separate computation must be made for each state or country and the separate credits combined to determine the total credit.
Receipt or other proof showing payment of income tax to the other state or country and a copy of the return filed with the other state or country must be submitted with the North Carolina return. No credit is allowed for income taxes paid to a city, county, or other political subdivision of a state or country or to the federal government

Click here for "How to file if I moved to a different state last year."

Click here for instructions on how to file your nonresident return.

Click here for information regarding filing multiple states returns.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

Mf29

I had a question regarding this. I am moving to Indiana in October or November however I will still be working in Kentucky as I have my own business there and will be commuting back. I pay myself on payroll and withhold Kentucky taxes currently. I know they are reciprocal states but I am wondering if I need to switch to withholding Indiana as soon as I move. And if so, how will I go about filing my taxes since I will have been a resident of Kentucky through move (and withholding Kentucky) and then a resident of Indiana (withholding Indiana rest of year)? My husband is filing with me too but he’s a student so he has 0 income.

SteamTrain

Employee

@Mf29

Yep, as far as I can see, since you are, and only if you are paid on W-2, you'll need to switch to Indiana withholding. Make sure your business/payroll person knows how to do that and if they have no Indiana employees now, they may need to register somehow with Indiana to start doing so. I'm not conversant on how that is done. Then you will have to prepare your "personal" taxes as a part-year resident of each state, where your pay and withholding while resident of KY , and pay and withholding while resident of IN, should show up as separate lines for boxes 15,16,17 on your 2024 W-2. TTX software can deal with it properly, BUT IF preparing the part-year taxes for both states gets too confusing at tax time, you should get a local tax pro to do it for you for 2024 taxes.

Might also be a good idea to interface with a professional tax preparer and CPA to review how your business is set up, because the business taxes would likely be dealt with differently, depending on how that business is set up......and that it is set up properly. (Partnership? C-Corp?, S-Corp?, but I'm totally ignorant on setup and state business tax issues).

-----------------------

@Rick19744 Sounds right?

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*