When more than one state taxes the same income, you can claim a credit for taxes paid to the other state. The 'other state' is usually the nonresident state.
When you create a Resident state return and a Non-Resident state return, the program will calculate the credit for taxes paid to another state, if applicable.
Each state has an article within our Knowledge Base regarding credit for taxes paid to another state. Please review the instructions for your state as many states have reciprocal agreements which does not allow the credit.
Let the program calculate the credit, so it is properly calculated. Most Resident state returns tax your Federal Adjusted Gross Income (AGI), regardless of where the income was earned. Therefore, the income taxed by the Resident state may include income that was earned in and taxed by another state. You only claim the credit for taxes paid to another state if the amount of tax being calculated on your Resident state return is based on income that was taxed by another state. You can usually only take the credit on a Resident return.
Claiming the Credit using the program:
If you are filing your state returns using this program, you generally do not have to enter any information for the credit to calculate.
- For any Resident return you file, the program will automatically calculate the credit if the other state return(s) are Nonresident returns.
- If any other state returns are Part-Year returns, and you want to claim the credit for those states on your resident return, you will have to manually enter the information for the credit to calculate.
- Because this credit is uncommon on Nonresident and Part Year returns, the program will NOT automatically calculate this credit for these types of returns because it is so rare. You will have to manually enter the information.
To correctly figure your credit (if you need to manually enter the credit for taxes paid to another state such as Part Year returns), you need to actually prepare and view your other state return to make sure you have the correct amount.
The amount of tax that you report as being paid to the other state is NOT the amount of taxes that were withheld by the other state. It is the amount of tax that is calculated on the other state return. Create the additional state return(s) then view the PDF of the other states’ return to get the amount of tax. DO NOT report the amount that was withheld (on your W-2, for example).
To view the PDF, please click:
- Print your 20XX return (a PDF of the federal and state return will open in one document on the screen for you)
The amount that you receive as a credit is based on the amount of tax that is calculated for the other state.
If you had $1,000 withheld during the year, but then file the other state return and receive a $250 refund, the amount of tax you actually paid to the other state technically was only $750. On the other hand, if you had $1,000 withheld, and you file the other state return and end up owing an additional $150, the amount of tax that you paid to the state was $1,150.
Reporting the amount that was withheld, from a W-2, could result in a larger or smaller credit than you are eligible.