|State||Income Earned||Tax Paid||Tax Using Alabama Rates||Credit Allowable|
Note that the $23,000 taxable in Alabama includes the $13,000 earned in other states. The taxpayer will have net tax due to Alabama of $640, as shown below.
|Total tax at Alabama rates||$1,073|
|Less credit from State X||($373)|
|Less credit from State Y||($60)|
|Net tax due to Alabama||$640|
|(Adapted from Alabama Regulation §810-3-21-.01)|
The credit is allowed only on the Alabama return for the year in which the income is taxable in the other state, even though the tax is not paid to the other state until a later year. For example, if an Alabama resident taxpayer owes tax to the state of Georgia for the 2010 tax year, and pays that tax in 2011, the credit will appear on her 2010 Alabama return. For purposes of determining the Alabama tax liability, and for determining whether or not the underpayment penalty applies to the Alabama return, the credit is deemed to be a payment of tax to Alabama on the due date of the Alabama return.
An Alabama resident taxpayer claiming the credit for taxes paid to another state computes the credit on Form CR, Credit for Taxes Paid in Another State, and is required to attach a copy of the return for the other state to his Alabama return. The other state tax return must show the amount of taxes paid to that state.
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