@Jacob8080 --
Your Scenario (1) is correct.
If you're a non-resident of MA, and you never physically perform any work within MA, then your income from that work is not taxable by MA. MA does not tax non-resident remote workers.
In order to obtain a refund of the incorrectly withheld MA taxes, you'll have to file a non-resident MA tax return at year's end, on which you allocate zero income to MA. This should result in your receiving a full refund from MA.
Your income is of course100% taxable by your home state of New York.
You cannot claim an "other state credit" on your NY return, because in actual fact you owe no taxes to MA.
Your employer should be withholding NY taxes only from your pay. If they cannot or will not do that, then you must make quarterly estimated tax payments to NY. See this:
https://www.tax.ny.gov/pit/estimated_tax/
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
