- Under the Indiana "Credit for Taxes Paid to Other States" tax regulations, Indiana residents may be able to claim Indiana tax credits for income taxes paid to other states earned while working in those states, while conducting business in those states or earned while owning real property in those states. Indiana has reciprocal agreements with Michigan, Ohio, Wisconsin, Kentucky and Pennsylvania. The agreement with these states only covers income earned from salaries, commissions, tips and wages in those states. Indiana residents who earned income through business ownership or from agricultural work are not covered by a reciprocal agreement. Although Indiana does not have a reciprocal wage agreement with Illinois, it does have a reciprocal credit agreement.
- According to the Indiana Department of Revenue, Indiana residents are eligible to receive tax credits for income taxes paid to Illinois. In addition to allowing income tax credits for taxes paid to Illinois, the Indiana Department of Revenue participates in income tax credits with at least two dozen other states.
To claim a credit for income taxes paid to Illinois, Indiana taxpayers must complete an Indiana tax return, file taxes with the Illinois Department of Revenue, submit a federal W-2 and submit a copy of the Illinois tax returns. The amount of the credit for taxes paid to Illinois is the lesser of an individual's tax liabilities paid to Illinois; the amount of an individual's tax liabilities paid to Illinois multiplied by .034; or the amount of taxes paid to Indiana on Form IT-40. - According to the Illinois Department of Revenue, Illinois taxpayers are eligible to receive tax exemptions under reciprocal tax agreements with Kentucky, Michigan, Iowa and Wisconsin. Thus, an Illinois resident who earns income from companies located within any of these states are not subject to income taxes by those states. However, Illinois residents working in those states must pay income taxes to Illinois for income they received working in those states. Conversely, Kentucky, Michigan, Iowa and Wisconsin residents are not subject to taxation by Illinois for income earned in Illinois.