Category: State Tax Questions
Credit for Taxes Paid to Another State - Overview
On most state returns, there is an option to take a credit for taxes paid to another state. However, many times this credit is taken incorrectly. There are generally only a few situations in which you are actually eligible to correctly take a credit for the taxes you paid to another state.
|Common questions about the credit for taxes paid to another state include:|
- When should I claim the credit? (see the section of this article below)
- Part Year Returns: Why should I not take the credit on a Part Year state return?
- Nonresident Returns: Why should I not take the credit on a Nonresident state return?
- When can I take the credit on a Part-Year or Nonresident state return?
- What amount should I enter for the amount of tax that I paid to the other state?
|When should I claim the credit?|
In most cases, you should only be claiming the credit for taxes paid to another state if the amount of tax being calculated on your state return is based on income that was taxed by another state. This is why you generally can only take the credit on a resident return.
Most resident returns tax your Federal AGI, regardless of where it was earned. Because of this, the income that is taxed will include income that was earned in and taxed by other states. Because the amount of tax on a resident return is based on income that is subject to tax by another state, you would be able to take the credit.
Claiming the Credit through TaxSlayer: If you are filing your state returns through TaxSlayer, you generally do not have to enter any information for the credit to calculate.
- For any Resident return you file, your credit will automatically be calculated as long as the other state returns that you are filing are Nonresident returns. However, if any of your other state returns are Part-Year returns, and you wish to claim the credit for those states on your resident return, you will have to manually enter the information for the credit to calculate.
- Because this credit is uncommon on Nonresident and Part Year returns, if you are trying to claim it on either of these you will have to manually enter the information. TaxSlayer will NOT automatically calculate this credit on either of these types of returns because it is so rare.