How Do I Claim the Arizona Credit for Taxes Paid to Another State?

If the same income was taxed by both Arizona and another state or foreign country during the same tax year, you may qualify for the Arizona Credit for Taxes Paid to Another State or Country (Form 309). This credit helps prevent you from being taxed twice on the same income.

For many Arizona residents, the credit is calculated automatically when both state returns are completed. However, some taxpayers, including part-year residents, may need to enter information manually.

Who Qualifies for Arizona Form 309?

You may be eligible for this credit if:

• You're an Arizona resident or part-year resident.
• The same income was taxed by Arizona and another state or foreign country during the same tax year.
• You paid a qualified net income tax to the other jurisdiction.

The credit is designed to reduce double taxation, but it only applies to eligible income taxes actually imposed by the other state or country.

How the Credit Is Calculated in the Program

For most Arizona resident returns, the software calculates the credit automatically when you prepare:

1. An Arizona resident return, and
2. A corresponding nonresident return for the other state.

Because the calculation depends on information from both returns, it's important to complete the other state's return before reviewing your Arizona credit.

Keep in mind that the Arizona Department of Revenue may request supporting documents, such as:

• A copy of the other state's return
• Proof of tax paid
• Additional records supporting the credit claimed

Special Rules for Arizona Part-Year Residents

If you're filing as an Arizona part-year resident, you may need to enter information manually to calculate the credit.

Use information from the filed return for the other state, including:

• Adjusted Gross Income (AGI)
• Tax liability paid to the other state

To find this information in the software:

1. Select Review
2. Select Summary
3. Select View/Print PDF

If the PDF option isn't available, exit the state return and return to the main menu, then try again.

Don't Use State Withholding Amounts

A common mistake is entering state tax withholding reported on Form W-2.

The Arizona credit is based on the income tax actually imposed by the other state, not the amount withheld from your paycheck. Your withholding may be higher or lower than your final tax liability, so be sure to use the tax shown on the filed return.

States That Generally Don't Qualify

Arizona generally does not allow this credit for taxes paid to:

• Alaska
• California
• Florida
• Indiana
• Nevada
• New Hampshire
• Oregon
• South Dakota
• Tennessee
• Texas
• Virginia
• Washington
• Wyoming

In many of these situations, you may instead be able to claim a credit on the other state's return for taxes paid to Arizona.

District of Columbia Exception

The District of Columbia generally does not qualify for this credit, except in limited situations involving the District of Columbia's Unincorporated Business Franchise Tax.

Important Things to Know Before Claiming the Credit

Before filing Form 309, remember:

• A separate Form 309 is required for each state or country for which you're claiming a credit.
• The credit applies only to eligible net income taxes.
• The credit cannot be claimed for:
  • City taxes
  • County taxes
  • Penalties
  • Interest
• Unused credit amounts cannot be carried forward or carried back to another tax year.
• Taxpayers claiming this credit must also complete Form 301, Nonrefundable Individual Tax Credits and Recapture.

How to Enter Form 309 Manually

If you need to manually enter the credit in the program:

1. Select State
2. Select Arizona State Return
3. Select Edit State Return
4. Select Credits
5. Select Credit for Taxes Paid to Another State or Country (Form 309)

Enter the requested information from the other state's filed return, then continue through the interview screens to complete the credit calculation.

Bottom Line

Arizona Form 309 can help reduce or eliminate double taxation when the same income is taxed by both Arizona and another state or country. Most Arizona resident filers will have the credit calculated automatically once both returns are completed, while part-year residents may need to enter tax and income information manually. Always use the actual tax liability from the other jurisdiction, not withholding reported on a W-2.

Additional Information

Arizona Form 309 Credit for Taxes Paid to Another State