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I moved mid-year to Indiana, from Illinois. My employer remains in IL. For the entire year, my employer withheld IL state taxes. For the second half of the year, my employer also withheld local (county) taxes for Indiana.

The result of this is that for the second half of the year, I am paying full IL state income tax (4.95%) plus full IN county income tax (1.5%).

I am aware that I can receive an offset credit on my IN state return for state taxes paid in IL. The issue lies in the local tax.

Accountant A, in IN, tells me that I simply must pay both IL state income tax and IN county income tax -- that there is no local offset credit. Accountant B, in IL (about one mile away, right across the border), tells me that I need not pay the IN county tax -- that this amounts to double taxation.

Searching online has yielded several (divergent) suggestions:

  • This IN state document says that reciprocal agreements between states do not affect IN county tax. IN and IL do not have a reciprocal agreement, but I would still count this as a vote in the direction of Accountant A.

  • This article, however, seems to say that the Supreme Court sides with Accountant B.

  • TaxAct (yes, I tried that too -- completing everything up to but not including submission) seems to side with the Accountant A, as according to TaxAct, I will receive no IN refund.

  • While I can't seem to find it again, I could have sworn that a TurboTax article advised a third option: that the greater of State A + County A tax or State B + County B tax ought to be paid, but not any other combination.

I'm at a loss -- I can't seem to find a definitive answer. Any insight that might help to resolve this question would be appreciated.

  • There is a means to apportion taxable income to the respective states. You may have done a resident return for each when you in fact needed to do a part-year resident return for neither, one, or both depending on requirements. – A.K. Jul 26 '18 at 1:28

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