State Income Tax question

[LifeAct]

I tried searching for other threads that may address this, but I keep getting an error page.

How are state taxes handled for somebody living in 1 state but working in another? Particularly if NY is the state of residence?

[JAS]

Originally Posted by LifeAct

I tried searching for other threads that may address this, but I keep getting an error page.

How are state taxes handled for somebody living in 1 state but working in another? Particularly if NY is the state of residence?

I believe you follow the rules of the state where you're earning the money.

[Gandalf]

It may vary depending on the states. One common situation is that you file a nonresident return in the state where you earned the income, and pay the tax shown on that return to that state. You also file a return in your state of residence, but can take a credit for some or all of the tax you paid to the state where the income was earned.

Very simple example: state where earned has 2% tax. Resident state has 5% tax. You'll pay 2% to the state where earned, and 3% (5% less the 2% credit) to your residence state. (If the state where earned has a higher rate, you won't get a refund from your home state, nor could you use the "extra" tax you pay to the state where earned to offset any tax on income - like interest income - earned in the home state.)

This may not apply to all combinations of state where earned and residence state.

[LifeAct]

Originally Posted by Gandalf

It may vary depending on the states. One common situation is that you file a nonresident return in the state where you earned the income, and pay the tax shown on that return to that state. You also file a return in your state of residence, but can take a credit for some or all of the tax you paid to the state where the income was earned.

Very simple example: state where earned has 2% tax. Resident state has 5% tax. You'll pay 2% to the state where earned, and 3% (5% less the 2% credit) to your residence state. (If the state where earned has a higher rate, you won't get a refund from your home state, nor could you use the "extra" tax you pay to the state where earned to offset any tax on income - like interest income - earned in the home state.)

This may not apply to all combinations of state where earned and residence state.

That is what I was thinking. It seems that the net result is to pay the higher of the 2 state taxes.

[Dr T Non-Fan]

The (slow) abolition of income taxes and the replacement of them with sales tax looks better every day.

[ajstudies]

It totally depends on the states.

[Patience]

You pay full taxes to the state you work in. There is a formula where those taxes are deducted from your NYS taxes. It is not a 1-1 relationship, but I don't believe you pay more in total than you would if you worked in NYS.

TaxCut and other programs can handle it

[Rockhound]

When I was taking my exams, I worked in a higher tax state, but took all my study time at home (at least that's how I reported it), then prorated my salary between how much of my salary was earned while working in the high cost state, and how much was earned while working (from home) in the lower cost state.

[Patience]

I think I can assume living in NY and working in either NJ or CT (possibly PA) which are all lower taxes.

Btw, when living in the lower tax state count your travel time and vacation to prorate down the days in the higher cost state

[Griffin 6]

Originally Posted by LifeAct

I tried searching for other threads that may address this, but I keep getting an error page.

How are state taxes handled for somebody living in 1 state but working in another? Particularly if NY is the state of residence?

Congress recently passed legislation which allows you to calculate your taxes separately for each state as if you lived and worked in that state, average the amount owed, and then send half of the average to each state. I'm pretty sure about that anyway. You might want to ask my ex-brother-in-law if you get a chance. He's not a tax attorney or anything, but he did successfully get on disability, so he knows how to work his way around the government.