which state to file in

Illinois and Indiana are not reciprocal, so you'll have to file in both states. IN should give you a credit based on the tax you pay to IL on your IL source income. Prepare your returns in this order:

1. Federal
2. Illinois
3. Indiana

-- Phil Marti Clarksburg, MD

Illinois and Indiana used to have a reciprocal agreement, but it was rescinded in 1998 and has not been renewed. Your earnings will be Illinois source income, and your employer should withhold Illinois income tax. You'll file a nonresident return in Illinois. You'll also file a resident return in Indiana and report all of your income, including your Illinois earnings. Indiana will give you credit for the tax you pay to Illinois, limited to the proportion of your Indiana tax liability that relates to that income. Be aware that you run the risk of being determined to be a resident, taxable on all of your income, by Illinois as well as Indiana. You will remain an Indiana resident because your domicile (your main home) is there. However, Illinois defines a resident for tax purposes to include an individual who is present in the state for a purpose that is not temporary or transitory, regardless of domicile. I would argue that you are present in Illinois each week for the temporary purpose of performing services for your employer, but I'm not sure how receptive Illinois would be to that argument. Katie in San Diego

Be sure to read the residency statutes for both states to see what their criteria is for being considered a resident. It is possible to be a resident of both states. Usually, the resident state allows a credit for taxes paid to the non resident state. Each state is different.

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