Multi-State Tax Returns: Living in Illinois/Working in the City of Saint Louis

July 20, 2012 by Jan Roberg
Filed under: State Taxes 
St. Louis Arch

Photo by rustybrick on Flickr.com

I’ve written before about working on multi-state tax returns, see: http://robergtaxsolutions.com/2011/03/multi-state-tax-returns/

 

But this is specifically about Illinois and Missouri.  Even more specific than that—living in the state of Illinois and working in the City of St. Louis, Missouri.

 

Who would have thought this would be a big deal?  But for some people it might be.  You see, if you live in Illinois and work in Missouri, you get a credit for the income tax you pay to the state of Missouri to offset your Illinois income tax.  It used to be that the Illinois state income tax was only 3% while Missouri’s income tax was 6%.  The Missouri state tax pretty much covered all of most people’s Illinois income tax so you usually didn’t have a balance due on your Illinois tax return.

 

But now, the Illinois state income tax is 5%—and though 5% is less than 6%, Missouri allows more deductions than Illinois does so now the Missouri tax is often lower than Illinois tax.  And that’s where the City of St. Louis income tax comes in.  Most people call it the City of St. Louis earnings tax.

 

You see—Illinois allows you to use the City of St. Louis, Missouri income tax as a credit against your Illinois state income tax—and for some people, that really helps their Illinois tax bill.

 

Here’s the tricky part—even though you’re allowed to do it—it’s not automatic when you prepare your tax return.  You’re going to have to go in and manually claim it.  For example:  in my tax software, the program will automatically compute the credit for the Missouri state income tax, but it leaves the City of St. Louis out.  Same with Turbo Tax.  If I want to claim the credit for the St. Louis City tax, I have to go to the Credit to taxes paid to another state form and override the credit.  (I take the Missouri tax credit and I add the City taxes paid and put that number in the override box.)

 

If you’re working in Turbo Tax, when you’re on the credit for taxes paid to another state input page—you have lines for the different states.   Your Missouri tax credit should already be there, and then you just add the St. Louis City Tax on the next line.  It’s not difficult to do; you just have to know to do it.

 

Here’s a warning:  I spoke with a representative at the Illinois Department of Revenue and he told me that while it’s perfectly legal to claim a credit for taxes paid to the City of St. Louis, that you shouldn’t be surprised if you receive a letter from the Illinois Department of Revenue questioning that claim.  Don’t be frightened by this.  What happens is that the computers check against your state income tax and when the numbers don’t match it kicks out a letter to the tax payer.  If this happens to you, you just respond that you claimed the St Louis City tax as well.  You probably will need to include a copy of your W2 showing the city tax paid.   He said that it happens a lot with people who work in Paducah, Kentucky which also has a city tax.

 

Now if your Missouri income tax credit already covers all of your Illinois tax, you don’t even need to bother with the St Louis city tax—your tax credit is only good up to the amount of tax liability you have to Illinois.

 

But if you’ve done your Illinois return and you’ve got a balance due—that City of St Louis tax can come in mighty handy.

Comments

5 Comments on Multi-State Tax Returns: Living in Illinois/Working in the City of Saint Louis

  1. Bradley Parker on Wed, 17th Oct 2012 7:03 pm
  2. Ok so here goes. I moved to GA in 2010, and worked there until May of this year. I’m a Gov’t Contractor and my company required me to travel. I worked in GA up until May of 2012, then was sent to Alaska until November of 2012. Shortly after I got to Alaska my wife and I found out that she was pregnant. In July of 2012 my wife and I decided that it would be better for her (As I will be travelling again soon), to move us back to VA to be close to most of her and my family. Now here’s where it gets interesting. My parents are seperating and I own a house in GA. Although my home of record is now VA, we decided to keep the house and rent to my Mother, just so she has a place to stay and we can return to GA at a time of our choosing. I will be returning to GA for work in November 2012, with VA as my home of record, and eventually permanent address until we decide to return to GA as a family. Also I am a military reservist with my reserve center in VA, and will be travelling back there once a month. So to recap, I own a house in GA, live in VA, but work in GA, and have military drill in VA, and also spent 7 months in Alaska during 2012. Fun right? Tax time is coming soon, and this is way, way, way over me and my wife’s head, and was hoping you could add some insight on this situation to determine the best course of action. Thanks!!

  3. Admin Roberg on Wed, 17th Oct 2012 8:52 pm
  4. Hi Bradley,
    Here’s what I’d do. Because of your military reservist status, you have a military home of record in VA. That’s a little different from being a state resident for tax purposes. Got that? Okay.

    For 2012, you are a part year resident of Georgia and a part year resident of Alaska.

    The reason I’m saying that is because Alaska has no state income tax so state residency in Alaska is a good thing.

    Now–Moving forward into 2013–you will be moving to Virginia but still working in Georgia. Then you’ll file a Virginia resident return and a Georgia non-resident return.

    Now I also think it’s important for you to look at the cost of your temporary job locations. There may be tax deductions available to you for that.

    For what it’s worth, your type of return is my specialty. If you can’t find someone local that can help you, I’d be happy to do your tax return. You’re going to be looking for someone who understands mulit-state taxes and you’re going to want to ask about form 2106-Employee business expense deductions.

  5. Angela Gore on Mon, 28th Jan 2013 4:23 pm
  6. Why can I not claim the earning tax on my Missouri state form? I now have to pay them because they told me I can’t declare that. I”ve declared it for years and now all of a suddent I can’t??

  7. Jan Roberg on Tue, 29th Jan 2013 9:36 am
  8. Hi Angela,
    Did you get a letter or something? I’m not sure of your question. Sorry.

  9. Matthew on Thu, 31st Jan 2013 1:53 pm
  10. I don’t have a question as I understand the situation perfectly now thanks to your very helpful blog on this topic! Rather, I just wanted to thank you for provide this detailed explanation. I have this exact situation (live across the river in IL but work in downtown St. Louis MO). I payed the state of IL over $700 last year because I didn’t realize that I could use the city taxes paid as part of my credit for taxes paid to another state. Now that I know this, I will use it correctly this year in order to lower by IL tax bill as well as file an amended 2011 return to see if I can recoup some of that $700 paid last year!!

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