Author Topic: Any Accountants here? I've got a relatively uncommon tax question...  (Read 560 times)

Offline Rob

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By any chance do you any of you know the answer to this question?

My girlfriend is a graduate student in Michigan. She's living here in Chicago though. She received some fellowship money this year and is entering all of her tax stuff into Turbo Tax, and it's apparently telling her that she needs to pay state income tax on this money in Michigan and again in Illinois.

That sounds completely wrong to me but I don't really know this for a fact. I would think that she either earned the money in Michigan and it is not Illinois income or she's a resident of Illinois and should be taxed as residential earnings here.

Does anyone know if this is accurate? I'm trying to save her the few hundred dollars it would cost to hire someone to file her taxes for her since it would cut significantly into the tax savings if it can be changed.

So yeah, I'm looking for free tax advice.

Thanks in advance!
« Last Edit: January 20, 2011, 01:57 PM by Rob »

Offline BillCable

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #1 on: January 20, 2011, 02:02 PM »
I know for certain you don't have to pay it twice.   ;)
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Offline Dressel Rebel

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #2 on: January 20, 2011, 02:08 PM »
But if you do, you undoubtedly have democrats to thank.
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Offline Rob

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #3 on: January 20, 2011, 02:31 PM »
I know for certain you don't have to pay it twice.   ;)

Can you elaborate at all?  Are you basing this on experience?

Offline BillCable

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #4 on: January 20, 2011, 02:36 PM »
My wife works for three out-of-state colleges, and only pays Pennsylvania tax on them.
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Offline Rob

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #5 on: January 20, 2011, 02:37 PM »
My wife works for three out-of-state colleges, and only pays Pennsylvania tax on them.

Thanks.   :) 

So unless there's a different rule in Illinois, should only be paying state income tax where she's a resident...  I'll have to look at her Turbo Tax stuff tonight to see if I can get to the bottom of what it's asking her.
« Last Edit: January 20, 2011, 02:38 PM by Rob »

Offline EdSolo

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #6 on: January 20, 2011, 02:40 PM »
I believe some states will make you pay, but then you get a refund...it all depends on how each state collects taxes.  For example, if you live in state X, but work in state Y, you only have to pay tax to state X.  However, if states X and Y don't have some sort of tax agreement, your employer may have to take out taxes for both states and then at the end of the year you have to file in both states and get a refund from state Y.

Offline Rob

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #7 on: January 20, 2011, 02:43 PM »
No money was taken out of her earnings since they were single-pay-out fellowships.  It was entirely up to her to set aside money, which she did, but this surprise, if accurate, means she didn't take enough out since she wasn't expecting to be paying income tax on the same money twice.


Offline Keonobi

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #8 on: January 20, 2011, 03:21 PM »
Yeah, she should be taxed on the income only once.  From what I've read it looks like income should be recorded on both state's returns, but credited on the state she is a resident in and taxed in the state which she earned the money.  (You'll recall how Al Franken ran into trouble during his Senate run because he had claimed all his income in the state where he was a resident, NY, so he had to file amended returns in all the states where he had collected income in previous years).

Turbotax's website has links to the Illinois forms for claiming a credit on tax paid in other states here


Rob, on Illinois' tax website they had the actual form.  On page 4 there is kind of a FAQ section that says the following:

Quote
What if I earn income in Iowa, Kentucky,
Michigan, or Wisconsin?
If you earned wages, salaries, tips, or other employee
compensation from an employer in Iowa, Kentucky, Michigan, or
Wisconsin while you were a resident of Illinois, you are covered by
a reciprocal agreement between that state and Illinois and are not
taxed by that state on your compensation. However, you may be
taxed on other income.

If your employer withheld taxes or you paid tax to these states on your
compensation, you must claim a refund from that state. You may not
claim a credit on Schedule CR for that tax. You must fi le the appropriate
forms with that state to receive a refund of taxes withheld in error.
The reciprocal agreements do not prohibit subdivisions of these
states from imposing a tax on your compensation. For example, if you
were subject to tax by a city in Kentucky while you were an Illinois
resident, you may claim a credit for that local tax.
In addition, because of differences in state laws, you may be
considered a resident by one of these states and required to pay their
income taxes, even though you are an Illinois resident under Illinois
law. In that case, you may claim a credit for the taxes paid.

Not sure, but I think that means if the income was shown on a W-2 you only need to claim it in Illinois because of the agreement with Michigan.  Otherwise it looks like you should claim it in both states, but also claim the credit in Illinois for the tax paid in Michigan.

Disclaimer: I'm not an accountant or a lawyer, so please don't sue...
« Last Edit: January 20, 2011, 03:28 PM by Keonobi »
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Offline Rob

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #9 on: January 20, 2011, 03:29 PM »
Thanks!  That's helpful.  I'll look at it with her and see if we can sort it out on our own.

Offline Neal

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Re: Any Accountants here? I've got a relatively uncommon tax question...
« Reply #10 on: January 20, 2011, 10:38 PM »
Per what was said above, she'll probably have to file a Michigan state tax return, and claim the income on both returns (Michigan and Illinois), but, in effect, she should only be taxed once.  She will most likely have to pay income tax via the Michigan return and receive a credit on her Illinois return.