Hello, I am about to start an internship in a neighboring state. Do I file for withholding in my home state or the state I am working in?
I understand that I would be paying taxes to the working state, but I do not know how withholding works OR (if I have the option) which state to have withholding in.
My father-in-law worked in a state he didn't live in for many years. I believe he payed taxes to both states, but I'm not sure and you'll see why in a moment.
In theory, you have to pay income taxes to both states. In many cases, there are agreements between the two states to limit the income taxes. In his case, the limit was that you only had to pay the greater of the two. If you worked in state 1 and lived in state 2, then you first payed taxes in state 1. If state 1 had a lower tax rate, then you'd end up paying the difference to state 2.
