Taxes - Credit for Income Tax Imposed by Government Units outside Michigan

Credit for Income Tax Imposed by Government Units outside Michigan

Schedule 2, Line 5: Credit for Income Tax Imposed by Government Units outside Michigan.

Line 5a: Enter the total income tax paid to other government units. If you paid tax to more than one unit, attach a schedule showing the tax paid to each government unit.

Include the amount of income tax paid to:

A nonreciprocal state (see page 7)
A local government unit outside Michigan, including tax paid to local units located in reciprocal states
The District of Columbia
A Canadian province.

Do not include taxes paid on income you subtracted on lines 8 through 20 of Michigan Schedule 1 (e.g., rental or business income from another state, part-year resident wages, etc.). If you claim credit for Canadian provincial tax, you must file a Resident Credit for Tax Imposed by a Canadian Province (Michigan Form 777). Attach copies of your Canadian Federal Individual Tax Return (Form T-1), Canadian Form T-4, Foreign Tax Credit (U.S. Form 1116), and U.S. Form 1040. Your credit is limited to the portion of your Canadian provincial tax not used as a credit on your U.S. Form 1040.

Attach a copy of the return filed with the other government unit(s) to your MI-1040.

Line 5b: Credit amount. If more than one government unit is involved, compute the credit amount for each government unit separately. Then add the individual credit amounts and enter the total on line 5b.

Compute your allowable credit as follows:

Divide your non-Michigan income subject to tax in both states by your total income subject to Michigan tax (MI-1040, line 14); then multiply the amount of tax shown on MI-1040, line 17, by the result.

Your credit cannot exceed the smaller of: (1) the amount of tax imposed by another government; or (2) the amount of Michigan tax due on salaries, wages, and other personal compensation earned in another state.

For further assistance in calculating your credit, use estimator below.

EXAMPLE: Computing Michigan resident's credit for tax imposed by another state.

Michigan wages $18,000

Wages earned outside Michigan $12,000

Income Other than Wages (such as U.S. savings bonds interest) + $1,000

Adjusted Gross Income (MI-1040, line 10) $31,000

Schedule 1 subtractions - $1,000

Total income subject to tax (MI-1040, line 14) $30,000

Percent of non-Michigan income to total ($12,000/$30,000) 40%

Taxpayer has 2 exemptions (2 x $3,500) - $7,000

Taxable Income (MI-1040, line 16) $23,000

Tax 4.35% (0.0435) (MI-1040, line 17) $1,001

Tax imposed by a government unit outside Michigan
(Enter this amount on your Schedule 2, line 5a) $700

Credit limit is 40% of $1,001 $400

Because this amount is less than the tax imposed by the other state, it will be entered on your Schedule 2, line 5b.

Credit for Income Tax Imposed by Government Units Outside Michigan Estimator Compute the credit amount for each government unit separately.
Enter Only One of the Following:
- Tax paid to a nonreciprocal state - Tax paid to a local government unit outside Michigan *includes tax paid to local units located in reciprocal states - Tax paid to the District of Columbia - Tax paid to a Canadian Province
Total Income Subject to Michigan Tax: MI-1040, Line 14
Total Income Subject to Tax by Both Governments: do not include income subject to tax only by Michigan or only by the other government
Percent of Credit:
Total Tax from MI-1040, Line 17:

Your Results:

Eligible Credit: Enter on Schedule 2, Line 5b

Please remember to a copy of this screen once your estimation is complete. Keep this copy with your tax records/documentation for the appropriate tax year. Do not use the "Printer Friendly" version as it will delete all figures from your estimation results.

DISCLAIMER:
This estimator provides an unofficial estimate and has no legal bearing on any future tax liability. Interactive estimators are made available to you as self-help tools for your independent use.

NOTE: The information you provide is anonymous and will only be used for purposes of this estimation. It will not be shared, stored or used in any other way, nor can it be used to identify the individual who enters it. It will be discarded when you exit this program.