Note: This message is displayed if (1) your browser is not standards-compliant or (2) you have you disabled CSS. Read our Policies for more information.
March 31, 2010
Chances are if you receive income from Indiana sources, you’ll pay taxes to Indiana on it. But what happens when you are an Indiana resident and earn income from another state? Which state will tax that income? Believe me, I’ve encountered more than one taxpayer chasing his tail on this one.
But as tricky as it may sound, there is a logical thread you can follow. Let’s start with my friend Johnny (okay, so he’s fictitious, but play along). Johnny lives in Indiana and works in Chicago. Because he lives in Indiana, he’ll have to pay tax to Indiana on that income. He’ll also have to file a tax return with Illinois, paying tax to Illinois on that income.
If you think it doesn’t seem fair that Johnny has to pay tax to two different states on the same income, you are absolutely right! That’s why one of the states will offer a credit for the taxes Johnny paid to the other state.
Indiana has credit agreements with the other 42 states in the union that have a state income tax. Sometimes the state where you live will grant a credit, sometimes it is reversed (the state where you work grants a credit). It all depends on which state you are dealing with.
You can begin to see why we get a lot of calls on this tax issue.
Here’s a list of resources that will help in your search for answers. You will find information about how other states tax income, what the credit agreements are, and how to report everything:
Oh, and about Johnny – Indiana gave him a credit for taxes paid to Illinois. That helped him sleep soundly, dreaming of the day he can retire to his cabin on the lake. Well, he would have … if he was real.
If you would like to submit a question or topic suggestions, please send them to email@example.com
Follow us on Facebook and Twitter.