Have a Tax Question? Ask a Tax Expert
Hello and thank you for using Just Answer.
Illinois no longer has a reciprocal agreement with Indiana. That means your boyfriend needed to file his Illinois returns and claim the taxes paid to another state for a credit on the taxes paid to Indiana.
The reciprocal agreement between the states was rescinded in 1997 or 98.
They should have filed resident Illinois returns and Non resident Indiana claiming the credit for the taxes paid to Indiana.
When you work in one state and live in another you pay taxes to both (unless there is reciprocity between the states). Your resident state gives you a credit against the taxes that you paid to the other state to offset the taxes owed at home. If your home state has a lower tax rate it all works out great. If the rate is higher then you usually end up owing your home state some additional money.
If time allows, he needs to prepare Indiana non resident returns to make sure he owes what they are asking, amend Illinois returns to claim the credits for taxes paid to Indiana, and contact JK Harris to see what they can do about this.
\I advised if time allows because you can normally only go back 3 years from April 15th of the current year to file amended returns. That means he could go back to 2006 by tomorrow.
so does this mean that any money he paid to Illinois for tax years prior to 2006 is just gone ? Illinois will not pay him back for those years, even though he just paid them within the last 6 months ? Can we sue the state of Illinois for that money ? I just don't understand how they can keep money that they are not owed. Also, because he closed out a retirment account to pay them that $14,000.00 not only is he getting screwed if they don't pay it back, he also has to pay addl taxes, penalties on taking it out in the first place. Thanks for your help! I really appreciate it !!
He did owe Illinois tax from the fact that he is a resident of that state. Now, how much he owed is the real question. He can not sue the state for that money. What he did (or really did not do) was against state law. He was required to file and he did not.
The amount of tax owed would have been less, if the Indiana returns had been prepared and the credit applied to the Illinois returns to reduce the amount owed to his home state.
He owed Illinois a tax accounting of his income. He should prepare the last three years at least for Indiana and then prepare amended returns for Illinois so he could possibly receive refunds from Illinois from the amendments.
The retirement fund use for tax payment is unfortunate, because you are right he will need to include that in his income for 2010.