I live in Indiana, but work in Illinois -- some of my job contracts are on-site in Illinois, and others are remote work. Last year, I received a taxable state refund from Illinois.

In my Schedule NR for Illinois, I am asked to provide the portion of each type of income that is assignable to Illinois. For income from jobs worked on site, this is easy: I assign all of that income to Illinois. For income from jobs where I worked remotely from Indiana, this is also easy: all income is assigned to Indiana (unless I've been terribly misled on this point). Interest income from savings accounts, too, is assigned to my state of residency. However, I am not certain how to split up 2017 Illinois state refunds.

I am inclined to believe that because the money contained in these refunds was originally earned on-site in Illinois, that this money still 'counts' as being earned in Illinois -- as such, it would all be assigned to Illinois. However, it was paid out while I was living in Indiana -- so would this be more similar to interest income or remote work income, and assigned to my state of residency?

In short: are tax refunds from state X assigned to state X when dividing income among several states, or should they be assigned to state Y of residency? Any advice would be appreciated.

  • 1
    Surely your Illinois state tax isn’t deductible on your Illinois state tax return, hence your Illinois state tax refund isn’t taxable in Illinois. Unless Illinois tax rules are very strange.
    – prl
    Feb 19 '19 at 3:19
  • A good point, prl. I've modified the post to reflect the concern a bit better -- it's more about what state to assign the refund to as income. If I assign it to Illinois, then perhaps being 'taxed' at Illinois rates means paying nothing at all, because it's deductible. However, if I assign it to Indiana, perhaps that is no longer true? My confusion may be amplified by the fact that these state returns do suffer a federal tax, as I itemized my deductions last year.
    – FenTheta
    Feb 19 '19 at 11:57

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