Generally, Virginia will allow taxpayers filing a Resident Virginia income tax return to claim a credit for income tax paid as a nonresident to another state on earned or business income derived from sources outside Virginia or any gain, included in federal adjusted gross income, on the sale of a capital asset outside of Virginia provide the is taxed by both Virginia and the other state.
Virginia part-year and nonresidents may qualify to claim this credit if they have income that is taxed in both Virginia and your other state and you are not allowed to claim the credit on the other state's tax return.
How do I enter this?
The program will automatically calculate this credit for your Virginia Resident return when you add a Nonresident state return to your account. For Part-Year returns that have income taxed in Virginia and another state, you will be required to enter the information asked within your state program.
Since the credit for taxes paid to the other state is automatically calculated within the account, adjustments will need to be made to correctly calculate the state returns in reciprocal states.
What else do I need to know?
- If the income is from Arizona, California or Oregon, you must claim the credit on the nonresident return of that state instead of on the Virginia return.
- If the income is from District of Columbia, follow the DC instructions for receiving a refund of the tax paid.
- If you are a Virginia resident with wages, salaries and certain other compensation income earned as a nonresident in one of these four states, Kentucky, Maryland, Pennsylvania, or West Virginia you are not eligible to claim the credit for any income not taxable by the other state. If your wages, salaries and certain other compensation income are exempt, follow the other state’s instructions to obtain a refund of your withholding. A credit can be claimed on your Virginia return only for income taxes paid to any of the four states listed above on income that was not exempt income.
- Visit our Knowledgebase Article for detailed filing instructions for the resident and nonresident reciprocal state returns.
Border State Method
You may qualify for a special computation if you are required to file a return with Virginia and only one of the following states: Kentucky, Maryland, North Carolina, or West Virginia. The income from the border state must consist solely of wages and salaries or business income from Federal Schedule C, and your Virginia taxable income must be at least equal to the taxable income shown on the other state's return. We will automatically calculate this special credit when you enter the corresponding 2 letter abbreviation.