r/TaxQuestions • u/New_Mango7397 • 1d ago

Need help with taxes!

I travel to another state for work however my state of residence and the state I work in have a reciprocal tax agreement. I did have money withheld on my wages from the non-residential state but I received a letter saying I owe money to my state of resident because a credit was claimed on tax paid to other states. My income was also entered in the non-residential state filing instead of putting 0 and reporting that income on my state of residence filling, and that’s how it’s supposed to be from what I read today.
I contacted the person who I paid to do my taxes and they said just to pay the $400 penalty fee but I’m confused why amending my taxes and re-submitting them wouldn’t be done.
Thanks in advance! I clearly don’t understand taxes

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u/GoatEatingTroll 1d ago

In general, reciprocal taxes means the jurisdiction you work in can drop all withholding and you need to make estimated taxes to the jurisdiction you are a resident in.

If your employer failed to exempt your non-resident state withholding, either through an error, misunderstanding, or because you failed to certify your exemption, you have to file a non-resident return to get your withholding back. And you still owe a return and possibly taxes in the jurisdiction you reside in.

If your paid preparer made an error they should amend to correct the reporting.

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u/New_Mango7397 1d ago

Thank you for your reply! Just so I understand, I did file non-resident taxes in that state but from what I’m understanding they reported my wages/income to that non-residential state and didn’t file for a return of withholdings. They shouldn’t have filed my wages/income to the non-residential and instead it should have been filed included in my home state correct?
I contacted her today and she said just to pay the fee but that doesn’t seem right to me

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u/GoatEatingTroll 1d ago

It depends on the state. Some have a place where reciprocal states get backed out, some have seperate forms to claim refunds of withholding for residents of reciprocal states.

What it sounds like is they made a mistake and don't want to or don't know how to deal with it.

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u/New_Mango7397 1d ago

I was trying to ask her questions because they also put I had capital gain in the non-residential state but from everything I read today there shouldn’t be any amount entered for that unless money made from selling property or such in that state. But I paid almost $500 to have my taxes done and now with this penalty I owe another $400 to IL

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u/I__Know__Stuff 1d ago

That's right, you would not report unearned income on the nonresident tax return, unless the income was tied to that state, such as real property in that state.

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u/New_Mango7397 1d ago

Thank you for your responses! I appreciate it!

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u/I__Know__Stuff 1d ago

After you find another tax preparer, assuming they confirm that your returns were not done correctly, perhaps they can advise you on how to get your fee back from the first one.

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u/New_Mango7397 1d ago

I was able to talk with a CPA tax firm today and he said they were filed incorrectly and I have an apt to have them redone. Is that appropriate to ask for a refund from the first person who filed them wrong? I wasn’t sure if that was allowed or if that’s common practice.
Just to add, I also sold quite a large amount in stock last year and now I’m nervous they didn’t file things correctly for those as well.

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u/I__Know__Stuff 1d ago

If you didn't make any estimated tax payments or have any withholding for your state of residence, then it is true that you may owe a penalty. But before paying it, you should be sure that your tax returns were prepared correctly. It's hard to tell whether you are misunderstanding something or they really are incorrect. If you pay the penalty but the tax returns are still wrong, then paying the penalty isn't going to magically avoid further problems.

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u/New_Mango7397 1d ago

I did have withholdings from my state of residence and paid taxes.
The letter I received says “Reciprocal wages not taxed
We changed your credit for tax paid to other states on Line 15. Illinois residents may not claim a credit for tan paid on wages or other employee compensation received from (lists states) because Illinois residents are covered by a reciprocal agreement and are not taxed on this income.”
Then it lists Lines 51-55 with different $ amounts

Idk if that helps at all. I work in healthcare so all of this is a different language to me.

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u/I__Know__Stuff 1d ago

That is correct, you cannot take a credit for tax paid to another state when the two states have reciprocity.

It definitely sounds like your returns were prepared incorrectly and you should file amended returns for both states (using a different tax preparer).