Credit for Taxes Paid to Another State (code 17)

You may receive a credit if you are a Utah resident or part-year resident who must pay income tax to Utah AND another state, the District of Columbia, or a possession of the United States.

Part-year residents rarely qualify for this credit, as Utah and other states only tax the income earned while a resident of that state. To qualify, your income must be:

Taxable in Utah;
Taxed by another state; and
Included in "Column A – Utah Income" on form TC-40B.

The credit only applies to the part of your income taxed by both states.

Tips

You cannot claim this credit unless you complete an income tax return for the state where you paid taxes.
Part-year residents must pro-rate the tax paid to the other state. Compute the tax credit using only the income that was taxed in both states.

Common Errors

Claiming the withholding amount reported on a W-2 as taxes paid to another state. The amount on the W-2 is withholding tax based on wages earned and is only a prepayment of income taxes. You must complete the other state's return to get the actual amount of taxes paid.
Claiming credit for taxes other than income taxes. You cannot claim taxes such as property taxes, sales and use taxes, and corporate taxes. The credit only applies to income taxes paid to another state.
Claiming the entire amount of tax paid in another state. The credit only applies to the part of your income taxed by both states.
1. You must prorate the credit amount of the actual tax paid that applies to the income taxed by both Utah and the other state.
2. The prorated tax is calculated on the net tax after taking any credits allowed by the other state.

Examples

Part-year residents rarely qualify for this credit. To qualify, the same income must be taxed by Utah and another state. Normally, the income earned by a taxpayer in another state before becoming a Utah resident will not be taxed by Utah. In addition, income earned as a Utah resident is not taxed by the state of previous residence.

The following examples will help you decide if you qualify to take the credit and how to prorate the tax, if needed. The examples represent the most common problems encountered. If you need more help, call 801-297-7705 (1-800-662-4335 x7705 outside Salt Lake).

Example 1 – Part-year resident with no income taxed by two states

Rick lived in Arizona from January 1 to July 31 of the tax year. He moved to Utah August 1 and lived there through December 31. He transferred all of his bank accounts and other financial resources to Utah so there was no income earned in Arizona after he moved to Utah.

His state incomes taxes are:

State	Taxable Income	Tax
Arizona	$20,000	$5,000
Utah	$17,000	$1,043
Total Federal Adjusted Gross Income	$37,000

Rick cannot take a credit for taxes paid to another state since none of his Arizona income was earned after he became a Utah resident. Therefore, none of the Arizona income is included in the Utah income column (column A) of Utah form TC-40B.

Example 2 – Part-year resident with income taxed by two states

Ann is a single taxpayer who lived in Utah from January 1 through May 30 of the tax year. She moved to California on May 31 and lived there through December 31. She received some income from Utah investments after she became a California resident.

Her state income is as follows:

Her federal adjusted gross income is $42,470.
Utah's adjusted income is $22,183. This is the income Anne received while she was a Utah resident, plus all income on Utah investments.
California's adjusted income is $29,174. This includes some Utah investment income received after Anne became a California resident.

Income Summary	Amount
Adjusted gross income taxed in California	$29,174
Adjusted gross income taxed in Utah	$22,183
Sum of adjusted gross income taxed in Utah and California	$51,357
Federal Adjusted Gross Income (FAGI)	$42,470
Double taxed income - Sum of Utah and California adjusted income minus FAGI	$ 8,887

State income tax summary

Utah: Because Anne is a part-year Utah resident, the Utah tax is calculated in two steps:

Utah's taxable income is $42,470 (no allowable deductions). The Utah tax on all of Anne's income is $2,124.
The Utah tax is then prorated on the income earned only in Utah. The Utah income tax ratio is 0.5223 ($22,183 divided by $42,470 = 0.5223). Using this ratio, the amount of tax on her Utah income is $1,109 ($2,124 x 0.5223 = $1,109).

California: The tax on the California income is $1,200.

The credit for taxes paid to another state is calculated on Utah form TC-40S, as shown below.

1. Federal adjusted gross income taxed by Utah and California	1	$ 8,887	00
2. Federal adjusted gross income from federal return	2	42,470	00
3. Portion of other state gross income to total income (divide line 1 by line 2 and round to 4 decimal places).				3	0.2093
4. Utah income tax (line 14 on front of return)	4	2,124	00
5. Credit limitation (line 4 times decimal on line 3)	5	445	00
6. Actual income tax paid to California. Part-year residents must prorate the tax paid to other state(s). The credit only applies to the portion of the actual taxes paid on income that was taxed in Utah and the other state(s) shown.	6	366	00
7. Credit for taxes paid to another state (line 5 or line 6, whichever is less). Enter on TC-40A, Part 4, using code 17				7	366	00

Line 1: The income taxed by both Utah and California.

Line 5: The Utah tax prorated on the double-taxed income.

Line 6: The tax on the California return is $1,200, which must be prorated for the double-taxed income. The amount of income taxed by both California and Utah is $8,887. The calculation for the prorated tax on the $8,887 is:

$8,887 divided by $29,174 = .3046 (California's ratio of income taxed in both states).

Using this ratio the credit is:

$1,200 x .3046 = $366

Line 7: The credit for taxes paid to another state cannot exceed the tax paid to California on the same income. Anne may take a credit of $366 on her Utah return.