We live in MA and only my wife's company is based in CT. Last year, she got approval from her company to permanently work from home, so her company changed her work state from CT to MA in the middle of year. I think this is why the state wages shown in box 16 for CT is only portion of her whole year's income. What I don't understand is, the state tax withholding in box 17 only shows for one state (I don't know which state it is for, but it appears on the same row as the MA state wages do)
I know the tax liability is prorated based on the percentage of a stage wages in the total taxable income. My question is, when I file the state tax return for CT and MA, do I need to split the withholding for MA and CT based on this percentage as well? For example, let's say her total income is $100,000 for 2021, only $30,000 is for CT while $100,000 for MA according to box 16. The state tax is $6,500 in box 17. I need to file non-resident tax return for CT because there is an income from CT. Then I will have to file resident tax return for MA by using this tax as a credit because MA and CT are reciprocal states. But for the CT tax, obviously the state tax withholding is not $6,500 because it is for the whole income. From another point of view, our tax liability in CT is only 30,000/100,000 * total taxable income * CT tax rate = 30,000 * 6% = $1,800, which is far less than the total withholding $6,500.
So I'm wondering when I file the CT tax return, should I claim that my CT tax withholding is 30,000/100,000 * 6,500 = 1,800, while MA tax withholding is the rest of that (6,500 - 1,800), then I use $1,800 as the tax credit when I file MA tax return? I feel this is the only way that makes sense to me for both states.
ps. My example doesn't take my income into account, but I don't think it affects the situation I've described above.
Thanks!
