I work in Missouri & live in IL, my husband works in IL. His military pension is federally taxed. Why is it being taxed on the Missouri return? Where am I going wrong?

If you are required to file an MO nonresident state income tax return because you have MO-sourced income to report then you will need to include all income (including your spouses military pension) but you will only pay MO taxes on your MO sourced income.

According to MO Department of Revenue -

Regardless of where your income was earned or if you are using Form MO-CR or Form MO-NRI, you must begin the Missouri return with your federal adjusted gross income, as reported on your federal return. Next, apply all allowable deductions and compute the tax on all of your income. The tax is then reduced by either the Missouri resident credit (Form MO-CR) or the Missouri income percentage (Form MO-NRI). The result for nonresidents is a prorated Missouri income tax based only on the income earned in Missouri. The result for part-year residents is a prorated income tax based only on the income earned while a Missouri resident.

Just to check that the correct amount of income is being taxed in MO, you can preview the MO tax summary.

To preview MO Tax Summary:

• TurboTax Online sign-in, click Here
• Select "Take me to my Return"
• Go to "Tax Tools" (on the side bar) then  "Tools"
• Under the Tools Center, select "view tax summary"
• Select "MO Tax Summary"