I’m using TurboTax* to help someone do their taxes. He lived in Indiana at the start of the year and started a job in April. Then in May he moved to Michigan, but continued working in Indiana with Indiana taking taxes out of his check. He stopped working in September and didn’t receive any other income. While he’s lived in and received mail in Michigan since May, he still has an Indiana state ID.
At the beginning of the Indiana return it says “As a part time resident of Indiana you only have to pay taxes on the money you received while living in Indiana”. But then, on the next page, under “Your Indiana wages”, it asks for the full amount listed in box 16 of the W-2, most of which was earned while living in Michigan.
So what am I supposed to do here? Do I list the full amount in Indiana and not file in Michigan? Or list the full amount in Indiana and try to get a credit on the Michigan return? If I file in Michigan do I have to list the full amount there too?
*I’d ask this question on Intuit’s support forums, but I tried asking and question earlier and they deleted it within minutes with no explanation, and further attempts to post questions give me error saying my account is being reviewed for violation of their terms of service. When I try contacting them about that, submitting the contact form redirects me to the login page. Then logging in takes me to the page to do my own taxes.
Indiana and Michigan have a reciprocal income tax agreement. The agreement means that residents of Michigan who work in Indiana do not pay tax to Indiana on the wages earned in Indiana while they are residents of Michigan. This applies only to wages and not to other sources of income.
But the wages earned in Indiana while a resident of Michigan ARE taxable by Michigan. So, yes, your friend will have to file a Michigan return and pay the appropriate taxes. You cannot get a credit from Michigan for taxes paid to Indiana because Indiana wasn’t supposed to tax the wages earned while he was living in Michigan.
If I understand what you are saying correctly, you are not filling out an Indiana return on paper, you are going through TurboTax’s interview and answering questions from TT? I could help you if you were actually filling out an Indiana tax form, but I really don’t know how to navigate TT’s interview.
I would suggest answering TT’s questions literally and seeing if later on in the interview it asks you if you earned any wages in Indiana while you were a resident of Michigan.
When you get to the end of the interview, do not submit your return immediately. Instead, check to see what TT filled in on Schedule A. Box 1A of Schedule A should contain all of your friend’s wages. Box 1B should include just the wages he earned while he was a resident of Indiana. If TT filled that out correctly, he should be good to go and won’t be charged any tax for the wages earned while he was a Michigan resident.
On the other hand, if Box 1A and 1B are equal, you have a problem. You might be able to force TT to do the right thing by fudging the amount that you copy from box 16 of your W-2.
When you get to doing the Michigan return, you should pay taxes only on the income he earned while living in Michigan (including the income earned from Indiana). Doing this on a paper return is not that hard. Hopefully TT will get it right, but I don’t know what questions it asks or what you’ll need to answer.
TurboTax is pretty smart. Let it do its job and don’t try to second guess it until you get to the end and see that it screwed up.
In situations like the OP it’s not unreasonable to consult a tax professional, i.e. live human being who does taxes for a living and not just as a seasonal thing, about the ins and outs of the situation. I did that when I moved from Illinois to Indiana but kept my Illinois job and doing so saved me a lot of grief down the line (in no small part because the company’s payroll department in Illinois had wrong-headed notions on how to handle the withholding that would have left me screwed over if I had listened to them). Spending a few bucks on professional advice sure beats a nastygram from the IRS.
Agree with Alley Dweller. Just follow the insutrctions mindlessly and then review what the result is when you’re done with both state’s returns.
The last time I had two-state income TT wanted me to enter all the income on both state’s returns. Then there was a section to prorate how much of the years I was living in state A vs. State B.
Each state is free to have their own rules for what constitutes living there. So it’s possible to end up with something other than X days in A and Y days in B where X+Y = 366.
Also agree with Broomstick. If after everything is done you’re still confused, definitely call a real CPA. Not H&R Block. It’ll probably cost $50 to get quality advice and it’ll be worth it.
Thanks to everyone for you help. I was mainly confused because I had completed the Indiana return, and there was no where to adjust the amount to only what was earned while a resident. But I went ahead went on to the Michigan return and it had a section for listing how much was earned in Michigan, and how much was earned outside of Michigan while a resident.
I filled out everything accurately on both returns, and came up with a small refund from Indiana and nothing owed either way in Michigan. I already e-filed the federal return, but TurboTax wants $20 each to e-file the states, so I’m just going to print them out and mail them in, which will give me a chance to look them over and make sure every looks right. If there’s anything on them that still doesn’t make sense, I’ll go ahead and see if I can get an actual professional to look them over.
In theory all you need to do is read the income tax laws of Michigan and Indiana and their reciprocity agreement, and you will find the answer to the question. In reality, you probably are not trained in reading tax legislation, which is why you came here in the first place.
I definitely suggest investing in getting the return done by a professional, preferably one who lives somewhat near the border of Indiana and Michigan (South Bend is probably the best bet) and presumably sees this sort of thing semi-regularly and so won’t have to do any extra research in order to complete the return. Of course, you’ll probably still be paying quite a handsome figure for their expertise (and software), but at least then you should be pretty certain that they’ll get it right.
I have always been amazed at how cheap, comparatively speaking, CPAs are. Lawyers are $300 - $500 per hour and your problem, whatever it is, needs 10s of hours. CPAs are $30 - $50 per hour and you need 30 minutes for a consult or 1 hour for them to review your returns. IMO CPAs are a real bargain. The OP should not be scared away by the potential price before he’s even asked some local CPAs what it is.
Agree completely that contacting somebody near the border would be the ideal way to get the most expertise per minute or per dollar. That’s an excellent suggestion.