Ensuring Reciprocal Agreements Are Properly Activated for States

[troy]

Taxpayer files MFJ.

The spouse mistakenly withheld taxes to Wisconsin, and they reside in Illinois.

IL and WI have a reciprocal agreement.

Based on my understanding, there is a way to make this only an Illinois state return, or at least ensure the reciprocal agreement is being recognized in ProSeries.

How do I do so?

https://tax.illinois.gov/questionsandanswers/12.html#:~:text=agreement%20with%20Illinois%3F-,What%20....

[sjrcpa]

He has to file a WI nonresident return to get a refund of the tax withheld.

Meanwhile they may owe IL.

The software should recognize the reciprocity. (Lacerte does anyway)

[tccpg289]

So basically -

No income allocated to WI, all income allocated to IL

Refund of withholding to WI.

Let's pretend that the income was indeed earned in WI and it wasn't an error - how would the software handle the reciprocity? I was always under the impression that reciprocity meant the non-resident return did not need to be filed.

[sjrcpa]

Reciprocity means the wages are only taxable in the resident state. No Wisconsin return is required. But your client might like to have the Wisconsin tax withheld refunded. Filing the nonresident return to get the refund is optional.

[sjrcpa]

You should get some sort of message that says wages are excluded from Wisconsin return due to reciprocity with IL.

[tccpg289]

Got it - so technically when they set up their payroll, they would need to know that their is a reciprocal agreement, and the W-2 would not need to withhold to WI.

If they don't do that, it is automatic for a NR return to get the refund.

[sjrcpa]

Pretty much.

[garman22]

Personally I'd let them withhold the WI tax and file that one first and wait for refund before you file Illinois. Unless client will make estimated tax payments for the no withholding on Wisconsin. But thats a judgement call. 

I typically file WI first before I file Illinois. But sometimes when client is late, he/she has to foot the bill. 

[sjrcpa]

It is April 5.

How fast does WI issue refunds?

[garman22]

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@sjrcpa wrote:

It is April 5.

How fast does WI issue refunds?

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Lol, I doubt that fast. I have one I just finished and I told them they'll have to pay out of pocket first.