How is income from other states reported and taxed?

April 6, 2015

If you receive income from Indiana sources, it’s likely you’ll pay income tax to Indiana. But what happens if you’re an Indiana resident and earn income from other states?

For example, John lives in Indiana and works in Illinois. Because he lives in Indiana, he’ll have to pay tax to Indiana on that income, but he’ll also have to file a tax return with Illinois and pay tax to Illinois on that income.

Of course, it’s not fair for John to pay tax on one income to two different states. For this reason, one of the states will offer a credit for the taxes John paid to the other state.

Indiana has credit agreements with the other 42 states that have a state income tax. Sometimes the state where you live will grant the credit, but sometimes the state where you work will grant the credit. Click here to see how other states tax the income.

More information can be found on page 7 of the IT-40 instruction booklet, available here.

Indiana part-year and full-year nonresidents should reference the IT-40 PNR booklet, available here.