Credit for Income Tax Paid to Another State (code 17)


General Information

UC §59-10-1003 and Rule R865-9I-3

If you are a Utah resident or part-year resident with income that is taxed by Utah and another state(s), the District of Columbia, or a possession of the United States, you may be entitled to a non-refundable tax credit for income tax paid to the other state(s). Nonresidents do not qualify for this credit.

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 also by the other state(s); and
  • Included in the income in “Column A – Utah” on form TC-40B.

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

Note: Part-year residents must prorate and enter the tax paid to the other state(s) on TC-40S, line 6. The credit only applies to the portion of the actual tax paid to the other state on the income taxed by both states. Examples 2 and 3 below will help you decide if you qualify for the credit and how to prorate the tax. The examples represent the most common problems. If you need more help, call 801-297-7705 or 1-800-662-4335 extension 7705 if outside the Salt Lake area.

Complete and attach form TC-40S, Credit for Income Taxes Paid to Another State. If there are two or more states, calculate a separate credit for each state. Examples of how to calculate the credit are shown below. Do not use the state income tax withheld from form W-2 as the tax paid to the other state. You must complete and file the other state’s return to determine the actual tax amount paid.

Any credit in excess of the tax due will not be refunded, and may not be carried back or carried forward.

The credit is claimed by entering the allowable credit from TC-40S on Utah TC-40A, Part 4, using code 17.

Keep a copy of the other states return(s) and all related documents with your records. You may have to provide additional information later to verify this credit.

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Electronic Filing

TaxExpress – You may file your return electronically on the Tax Commission website. If you choose one of the options available there, you may claim a credit for multiple other states.

Other e-File Software or Systems – If you file your Utah return electronically using commercial software or with your tax preparer, you may only claim a credit for tax paid to one other state. If claiming credit for tax paid to more than one state, you must file your Utah return on Tax Express or on paper.

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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 a credit for a tax other than income tax, 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 tax on the part of your income taxed by both states. The other state tax is the net tax after subtracting any credits allowed by the other state.
  • Part-year residents claiming the total tax paid to the other state. You must prorate the tax paid to the other state based on the income taxed by both the other state divided by total income on the other state’s return. The other state tax is the net tax after subtracting any credits allowed by the other state.

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Examples

Example 1 – Full-year resident with out-of-state income

Alan is a Utah resident and lived in Utah the entire tax year. He has a house he rents to others in Colorado. He files a Utah return on his total income and a Colorado return on just the rental property.

His state income taxes are:

State Taxable Income State Income Tax
Colorado (rental income only) $12,000 $720
Utah (total income, including rental income) $47,000 $2,350

Alan may take a credit for taxes paid to Colorado based on the percentage of total income attributed to the Colorado rental. (Alan does not have to prepare the Utah form TC-40B because he is not a non-resident or a part-year Utah resident.)

Alan’s credit for taxes paid another state is calculated as follows:

Credit for Income Tax Paid to Another State
1. Income taxed by both Utah and Colorado $12,000
2. Total income (federal adjusted gross income) $47,000
3. Ratio – line 1 divided by line 2 0.2553
4. Utah tax $2,350
5. Maximum credit – line 4 multiplied by line 3 $600
6. Income tax paid to Colorado on rental income $720
7. Credit for tax paid to Colorado – lesser of line 5 or line 6 $600

Note: Line numbers above correspond to line numbers of the TC-40S.

Example 2 – 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 income taxes are:

State Taxable Income State Income Tax
Arizona $20,000 $3,200
Utah $17,000 $850
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 Utah income in “Column A – Utah” of the Utah form TC-40B.

Example 3 – Part-year resident with income taxed by two states

Ann is a single taxpayer who lived in Utah from January 1 through May 31 of the tax year. She moved to California on June 1 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 gross income is $22,183. This is the income Anne received while she was a Utah resident, plus $8,887 income on Utah investments.
  • California’s adjusted income is $29,174. This includes the $8,887 Utah investment income received after Anne became a California resident.
Income Summary
1. Adjusted gross income taxed in California $29,174
2. Adjusted gross income taxed in Utah (TC-40B, column A) $22,183
3. Sum of adjusted gross incomes taxed in California and Utah $51,357
4. Federal adjusted gross income (FAGI) $42,470
5. Double taxed income – line 3 less line 4 $8,887

Utah: Anne is a part-year Utah resident and must calculate her Utah tax in two steps:

  1. Utah’s taxable income is $42,470 (assuming no additions or subtractions). The Utah tax (after the taxpayer tax credit) is $1,996.
  2. The Utah tax is then prorated (on TC-40B) based on the income earned only in Utah. The Utah income ratio is 0.5223 ($22,183 divided by $42,470). Using this ratio, the amount of tax on her Utah income is $1,043 ($1,996 x 0.5223).

California: The tax on the California return must also be prorated.

  1. Assume, for this example, California’s tax is $1,200.
  2. This California tax must be prorated (for line 6 below) based on the income taxed by both California and Utah of $8,887. The prorated tax is $366 (California tax of $1,200 multiplied by the ratio of $8,887 divided by $29,194, or .3046).

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

Credit for Income Tax Paid to Another State
1. Income taxed by both Utah and California $8,887
2. Total income (federal adjusted gross income) $42,470
3. Ratio – line 1 divided by line 2 0.2093
4. Utah tax (prorated for part-year resident) $1,043
5. Maximum credit – line 4 multiplied by line 3 $218
6. Prorated income tax paid to California on double taxed income $366
7. Credit for tax paid to California – lesser of line 5 or line 6 $218

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