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My situation is as follows:

  • Spouse works in MA
  • I worked in MA part year and part year in PA.
  • We file taxes jointly for federal and state.
  • My permanent residence is in MA, but I stay in a rented place in PA

Questions:

  • For the purpose of state taxes, am I going to be taxed based on where I work (PA), where I have a permanent residence(MA) or where I stay (PA) or based on total number of days I resided in a particular state?
  • Till now, I was filing taxes jointly with my spouse for both federal and state level. But now that we are in different states, how should we split the filing of the state taxes?
  • For this year(2012) I will have income in both states, but from 2013 on wards, my entire income will be in one state and my spouses's in the other state. In this case, do both of us have to file taxes in both the states?
  • Will my with holding be now for the tax from the new state?
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Both states will want to tax you. Your tax home is where you maintain a domicile, are registered to vote, etc. and you will probably want to keep this as MA since you state that MA is your permanent residence and you are staying in a rented place in PA. But be careful about voter registration; that is one of the items that can be used to determine your state of residence. OK, so if you and your spouse are MA residents, you should file jointly as residents in MA and as nonresidents in PA.
Do the calculations on the nonresident return first, and then the calculations on the resident return.

Typically, on a nonresident tax return, the calculations are effectively the following:

  • Report all your income (usually AGI from the Federal return). Call this $X. Compute the PA state tax due on $X. Note that you follow the rules for nonresidents in doing this, not the calculations used by PA residents.
    Call the amount of tax you computed as $Y.

  • What part of the total income $X is attributable to PA sources? If this amount is $Z, then you owe PA $Y times (Z/X).

On the resident return in MA, you will likely get some credit for the taxes paid to PA, and this will reduce your MA tax burden. Usually the maximum credit is limited to the lesser of actual tax paid to PA and what you would have had to pay MA for the same income.

As far as withholding is concerned, your employer in PA will withhold PA taxes as if you are a PA resident, but you can adjust the amount via the PA equivalent of IRS Form W4 so as to account for any additional tax that might be due because you will be filing as a nonresident. Else you can pay estimated taxes via the PA equivalent of IRS Form 1040ES. Similarly, your wife can adjust her withholding to account for the MA taxes that you will owe on the joint income, or you can pay estimated taxes to MA too. Note that it is unlikely that your employer in Pennsylvania will withhold Massachusetts taxes (and send them to Massachusetts) for you, e.g. if it is a ma-and-pa store, but there may be special deals available if your employer does business in both states, i.e. is a MA-and-PA store.

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  • Most problematic is the case where both states consider you resident. Check what the PA requirements for tax residency are, in some states working and being physically present is enough to be considered resident.
    – littleadv
    Sep 29, 2012 at 19:39
  • @littleadv The requirements for tax residency should certainly be checked. However, in my few experiences in a similar situation, the state(s) where we filed nonresident returns had no objections, and didn't demand to treat us as residents. For a given amount of income, I suspect that most states collect more in taxes from nonresidents than from residents: often the personal exemptions are smaller, various benefits such as tax credits or tax rebates for property taxes, etc. are not available to nonresidents, and so on.
    – Dilip Sarwate
    Sep 30, 2012 at 0:34
  • @Dilip,Thanks for the detailed explanation. As an additional info, me and my spouse are not us citizens, but legal immigrants on a visa. Will that change in any way what you have said in your answer?
    – EndlessSpace
    Oct 1, 2012 at 20:48
  • @summerboy Permanent immigrants to the US are taxed the same as US citizens. The rules for US income tax owed by non-immigrant visa holders can be affected by tax treaties between the US and the country of which the visa holder is a citizen. I would suspect that such treaties do not apply to income taxes levied by states, except insofar as the state tax return uses the AGI on the US income tax return as a starting point. Some states, especially those that border each other (as MA and PA do not) do have agreements about taxation of people who work in one state but live in the other.
    – Dilip Sarwate
    Oct 1, 2012 at 22:02

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