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I have a taxpayer that lives in Illinois but works in Indiana. Would unemployment benefits paid by Indiana be considered Indiana income or Illinois income?
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Indiana and Illinois are not reciprocal states. Therefore, income earned in Indiana is taxable as non-resident income for Indiana this IDR Bulletin will help https://www.in.gov/dor/files/ib28.pdf
However....... Indiana General Assembly will discussing and deciding sometime yet this month whether to tax unemployment income. this will help https://www.in.gov/dor/files/DOR-Rescue-Plan-Act-Guidance.pdf
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No mention of unemployment in that 2016 Indiana bulletin. It's an interesting question. I think the same or similar was asked here a while ago, with no answer. Thousands of people are collecting unemployment from one state -- at least they are collecting the federally-funded payments -- while residing in another. I haven't seen anything that discusses the law of state taxation on such benefits.
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This does specifically address the unemployment - -- see page 2
https://www.in.gov/dor/files/dor-tax_season_faqs_2020.pdf
And Bulletin #28 dated 2016 still applies today - it is the current version available at IDOR