Illinois Tax Form IL-1040 Schedule CR - Credit for Tax Paid to Other States Instructions

General Information

You should file this schedule if

• you were either a resident or a part-year resident of Illinois during the tax year; and
• you paid income tax to another state on income you earned while you were an Illinois resident; and
• the income subject to the other state’s tax is included in your Illinois base income; and
• you did not deduct the income tax paid to the other state when you fi gured your federal adjusted gross income as shown on your Illinois tax return.

You should not file this schedule if

• you were a nonresident of Illinois during the entire tax year; or
• you did not pay income tax to Illinois and another state on the same income.

For purposes of this schedule, “state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, or political subdivision of any of these (e.g., county, city, local). The term “state” does not refer to any foreign country.

If you earned income in Iowa, Kentucky, Michigan, or Wisconsin, you may be covered by a reciprocal agreement. This agreement applies only to income from wages, salaries, tips, and other employee compensation. See Schedule CR Instructions

What is the purpose of Schedule CR?

Schedule CR, Credit for Tax Paid to Other States, allows you to take a credit for income taxes you paid to other states on income you received while a resident of Illinois.You are allowed this credit only if you filed a required tax return with that state and the same income is taxed by both Illinois and the other state during the same taxable year. In Illinois, this income is considered to be “double-taxed” income. The credit is limited to the amount of Illinois tax that you paid on the double-taxed income.You must use information from the tax return you filed with the other state to complete Schedule CR.

A part-year resident may only take a credit on income earned while a resident of Illinois if the same income is taxed by both Illinois and another state.

A nonresident may not take a credit on Illinois Schedule CR.

What taxes qualify for the credit? 

Taxes that qualify for the credit are income taxes you paid to another state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States, or to a political subdivision (e.g., county, city, local) of one of these jurisdictions. No credit is allowed for taxes paid to the federal government or to foreign countries or to their political subdivisions.

To qualify for this credit, a tax must be deductible as state and local income taxes paid on your federal Schedule A, Itemized Deductions, whether or not you actually claimed the deduction. An alternative minimum tax measured by income may qualify. The Michigan Single Business Tax is not an income tax and does not qualify for the credit.

Note: No credit is allowed for interest or penalties imposed on you, even in connection with an income tax.You may claim the credit for income taxes paid on your behalf (e.g., by withholding or with a composite return), but only if you are the person legally liable for the tax (i.e., if you would be required to pay the tax if it had not been paid on your behalf).

What forms must I attach to receive this credit? 

You must attach a complete copy of each tax return you filed with the other state(s). However, if the other state (typically a city or county) imposes an earnings tax and does not require you to fi le a tax return, you must attach a copy of your Form W-2, Wage and Tax Statement, showing taxes paid.

Note: If you are a member of a partnership or an S corporation that pays tax for you in another state, attach a copy of the letter or statement (not the federal Schedule K-1) furnished to you by them. This letter must include the partnership or S corporation name and federal employer identification number (FEIN), the income, and the tax paid on your behalf.

What if I earn income in Iowa, Kentucky, Michigan, or Wisconsin? 

If you earned wages, salaries, tips, or other employee compensation from an employer in Iowa, Kentucky, Michigan, or Wisconsin while you were a resident of Illinois, you are covered by a reciprocal agreement between that state and Illinois and are not taxed by that state on your compensation. However, you may be taxed on other income.

If your employer withheld taxes or you paid tax to these states on your compensation, you must claim a refund from that state.You may not claim a credit on Schedule CR for that tax.You must file the appropriate forms with that state to receive a refund of taxes withheld in error.

The reciprocal agreements do not prohibit subdivisions of these states from imposing a tax on your compensation. For example, if you were subject to tax by a city in Kentucky while you were an Illinois resident, you may claim a credit for that local tax.

In addition, because of differences in state laws, you may be considered a resident by one of these states and required to pay their income taxes, even though you are an Illinois resident under Illinois law. In that case, you may claim a credit for the taxes paid.

Where can I find specific formulas to figure double-taxed income and tax paid to other states? 

When you figure credit for tax paid to other states, you must consider that the base income and tax from the other states’ returns may not be calculated in the same manner as the base income and tax on your Illinois return. For a list of formulas that identify the tax forms, line numbers, additions, and subtractions that you must use to compute the amount of double-taxed income and tax for Schedule CR, see Publication 111, Illinois Schedule CR Comparison Formulas for Individuals. To obtain Publication 111, visit our web site at tax.illinois.gov or call our 24-hour Forms Order line at 1 800 356-6302.

Specific Instructions

Step 1: Provide the following information 

Write your name and Social Security number as shown on your Form IL-1040, Individual Income Tax Return.

Step 2: Figure your credit

Line 1 – Follow the instructions on the schedule.

Line 2 – Column A. Write the two-letter abbreviation of each state and the name of any county, city, or local taxing district in which you paid tax on income that you received while you were an Illinois resident. This income must be included in Line 1, adjusted gross income, on your Form IL-1040, or in Column B of your Schedule NR, Nonresident and Part-Year Resident Computation of Illinois Tax.

Note: If you need more than eight lines, attach a separate page following the same format.

Column B. Write the amount of income that is being taxed by both Illinois and the other state listed in Column A. When determining your double-taxed income, apply the following rules:

• An item of income is double-taxed only to the extent both Illinois and the other state include it as income. For example, if State A allows you to deduct 60 percent of a long-term capital gain, only 40 percent of the capital gain is double-taxed even if Illinois taxes 100 percent of the capital gain. Also, Social Security benefits can never be included in double-taxed income because Illinois does not tax this type of income.
• An expense is subtracted when figuring double-taxed income only to the extent it is deducted when figuring both Illinois base income and the taxable income of the other state.

For example, do not take a deduction for federal income tax paid or for federal itemized deductions even if the other state allows those deductions, because Illinois does not.

• Standard deductions and general exemptions are never subtracted when figuring double-taxed income.
• Some states determine income by first figuring income as if the person were a resident of that state and then
  • multiplying the income or the resulting tax by a fraction equal to the percentage of income from sources in that state; or
  • allowing a credit equal to the tax imposed on a resident times a fraction equal to the percentage of income from sources outside the state.

Double-taxed income for any of these states is calculated by first figuring double-taxed income according to the rules above, and then multiplying that income by a fraction equal to the percentage of income from sources in that state, figured in the manner prescribed by that state’s laws.

• If a state imposes an alternative minimum tax, the determination of double-taxed income is made using alternative minimum taxable income of the state only if you actually pay alternative minimum tax. Otherwise, use the regular taxable income.

Note: See the “Examples for Column B” that follow.

Column C. Write the tax you paid to the other state on income shown in Column B. Only taxes paid to another state on income that is also taxed by Illinois (i.e., double-taxed income) qualify for this credit and can be included in Column C. The tax paid is the tax amount minus all credits allowed, except credits for payments you actually made to the other state or payments made on your behalf. If you purchased a transferable credit, the amount you paid for the credit is treated as a payment of tax.

For example, you must reduce the amount of tax paid to the other state by any credit allowed by that state for taxes you paid to Illinois.

However, you would not subtract a credit on your return for an overpayment from a prior year that you applied to this year’s estimated payments in the other state, for income tax withheld from your employer, or payments you received from a partnership.

If the amount shown in Column B is less than the total income on which you paid tax to the other state, you paid tax to the other state on income that is not taxed by Illinois. Therefore, you are not allowed a credit for the full amount of tax, and you must prorate the tax imposed on income taxed by Illinois.

To prorate the amount of tax imposed on income taxed by Illinois,figure the total amount of tax you paid times a fraction equal to the amount in Column B divided by the net income on which you paid tax to the other state.

Note: See the “Example for Column C” that follows.

Line 3 – Add the amounts in Column C, Lines 2a through 2h, plus the Column C amounts from any additional pages you attached when you figure this total. This is the total amount of income tax that you paid to the other states on Illinois base income.

Line 4 – Add the amounts in Column B plus the Column B amounts from any additional pages you attached when you figure this total.

Note: If you paid tax to another state and to a city, county, or other political subdivision of that state on the same item of income, you can only include the state or local income when figuring the amount on this line.

For example, if the amounts shown in Column B are $10,000 for State A and $8,000 for City B, a city in State A, and the $8,000 is salary, which is included in the $10,000 taxed by State A, the amount on Line 4 is $10,000 because the $8,000 cannot be included twice.

Lines 5 through 8 – Follow the instructions on the form.