So I am confused.  In the Illinois software I selected Michigan as the state my client worked in but lived in Illinois. Employer in Michigan withheld Michigan taxes. They should not have.   This was the case for 2017, 2018 and 2019.  We got a letter from Illinois that is disallowing  the tax credit from Michigan due to the reciprocal agreement for only 2019.  IL assessed penalties and told us to get the money back from Michigan.

I guess I am aware of the reciprocal agreement but I thought I input it all correctly as I marked the MI box in Illinois

1) Why wasn't this caught by Illinois in 2017 & 2018, did something change in 2019 in Illinois or the software? Do you think they still may come back for 2017 & 2018?

2) Why if I prepared the Michigan return first, Illinois second and selected Michigan as the state in the tax software why was the credit allowed? 

Is this a software glitch or do I need to enter this differently somehow to make it work?

On line 50 I x'd the box that says Michigan yet it did not say we couldn't take the tax credit from Michigan and allowed the withholdings from Michigan to remain as a credit.

I need to figure this out as 2020 will be the same.

thank you in advance.

Stay safe

Liz