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I have accepted a new job on the Eastern Shore of Maryland that I will start this summer, but I will have the option to live in either Maryland or Delaware (about the same commute either way). I'll be making $70k annually, paid biweekly.

I am trying to figure out from an income perspective what state would be the better place to live in. I know that Delaware tax rates are lower overall and that they have no sales tax, but I also know that Maryland doesn't have a reciprocal income tax agreement with them, and that I would have to file both Delaware income tax and a Maryland non-resident return.

I'm not sure how to figure out what the more optimal situation would be. Aside from "faking it" and doing two mock income tax returns to see how they shake out, anything else I should consider or try?

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  • Generally, paying twice instead of paying once is considered to be more expensive. But maybe on the East Coast it doesn't work that way... – littleadv Feb 7 '15 at 7:32
  • The poster would not end up paying twice. The MD income tax would be credited against the DE income tax. – Raze Feb 7 '15 at 17:09
  • @Raze based on what are you saying this? From the OP question I see that there's no reciprocity agreement between the States, so why would DE give credit? – littleadv Feb 7 '15 at 23:50
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There are a few factors in comparing the taxation:

(1) You compare your DE tax rate to MD tax rate
(2) MD imposes an additional 1.25% non-resident tax
- However, counties in MD often impose a county tax for residents of the county; some as high as 3.2%.
(3) There is some discussion as to whether MD is successfully tracking down and prosecuting sales-tax evaders who purchase good in DE and bring them back to MD.

[1] Non-resident tax http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Residency_Status/If_You_Are_a_Nonresident_Working_in_Maryland.shtml

[2] County taxes http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Tax_Information/Tax_Rates/Local_and_County_Tax_Rates.shtml

[3]Re: double taxation: https://revenue.delaware.gov/information/faqs_pit.shtml
"Q. I'm considering taking a job in Maryland. I know the states do not have a reciprocal agreement. How does the credit work for taxes paid to another state? Will I owe County taxes in MD? A. If you are a resident of Delaware who works in Maryland, you may take credit on line 10 of the Delaware return (form 200-01) for taxes imposed by other states. You must attach a signed copy of your Maryland return in order to take this credit."

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  • Any advice as to why you voted this down, so I can improve my answers in the future? – Raze Feb 7 '15 at 18:44
  • I didn't downvote, but I'd like to see some references. – littleadv Feb 7 '15 at 23:50
  • So why are you commenting to me? That should be in your answer. – littleadv Feb 8 '15 at 0:43
  • In the two-state scenario, I would have to file two state returns--a DE resident return, and a MD non-resident return. The MD tax collected does end up being somewhat higher because of the 1.25% tax levied against non-residents, but DE tax liability ends up being zero because of a credit offered for tax paid to other states. The real question is whether I would save enough over the course of a year on sales tax to make that 1.25% negligible. – Eaners Feb 8 '15 at 2:59
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    I'd only add that this goes down yet another layer, to town taxes and services . And possibly to homeowner association too. Remember to consider ALL the taxes, and what you're getting for them, if this is what's driving you housing decision. – keshlam Feb 8 '15 at 5:36

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