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This is a question about state income taxes between IL and…

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This is a question about state income taxes between IL and WI. Earlier this year, my wife and I were living in WI, I worked for a WI employer and she worked for an IL employer. We filed state taxes in WI since the two states have a reciprocity agreement. Now, I have obtained a new job in IL and now primarily live in IL. My wife still lives in WI but still is employed with the IL company. We typically file our federal return as "Married Filing Jointly". What are our options for filing state income taxes and, in the meantime, should I be withholding state income taxes from IL or WI? (Ideally, we would want to file in IL since the tax rate is lower, even after their most recent tax increase.) Thanks!

Accountant's Assistant: Because employment law varies from place to place, can you tell me what state this is in?

I am working and living in IL now

Accountant's Assistant: Has anything been filed or reported?

Not yet, move just happened a week or so ago. The only thing is that I am withholding IL state income taxes from my pay.

Accountant's Assistant: Anything else you want the lawyer to know before I connect you?

Nope, that is it.

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Answered in 12 minutes by:
8/30/2017
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
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Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Hello my name is ***** ***** I will be able to assist you today.

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Wisconsin currently has reciprocity agreements with four states: Illinois, Indiana, Kentucky, and Michigan. These agreements state, in general, that residents of these states will be taxed on income earned as an employee by their home state, rather than by Wisconsin. Conversely, Wisconsin will tax Wisconsin residents working in one of these states and the other state generally will not tax the income earned as an employee of Wisconsin residents who are employed in that state. Reciprocity applies only to income earned as an employee. Income earned as an employee generally includes salaries, wages, commissions, and fees.

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If your wife still lives in Wisconsin then she would pay taxes to Wisconsin even if the taxes are earned in Illinois.

You pay taxes on the money earned to the state you are living while you earned the income. Currently, you would owe taxes to Illinois.

You would have to complete a part year return for the income earned while living in Wisconsin and then income earned while living in Illinois.

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Here are two very helpful links from the department of revenue of each state.

https://www.revenue.wi.gov/Pages/faqs/pcs-work.aspx

http://www.revenue.state.il.us/Individuals/FilingRequirements/

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I would be happy to expand my answer if you have further questions.

If you have NO further questions please accept my answer.

Thank you have a great day!

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Customer reply replied 10 months ago
Thank you so much! This is extremely helpful! Based on that answer, would I need to file separate federal returns for my wife and I or could I still file a joint return? Obviously, we would need to file separate state returns in WI because she is a full year resident and I am a part year resident.

You still file one federal return, but you would have to file two state returns. A state return for when you lived in Wisconsin, but worked in Illinois and one for when you lived and worked in Illinois.

Your wife would only be included in the Wisconsin return.

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This may sound a little complicated, but if you are using an online product such as turbo tax then completing both forms is pretty straight forward.

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,610
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified
Chad EA, CDFA®, CFP® and 87 other Tax Specialists are ready to help you
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Customer reply replied 10 months ago
I am very familiar with tax software so it will be a bit more time consuming but still be quite simple. I will close the question. Thanks so much for your help!

If you do have any further questions please let me know.

Thank you!

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