I would file Massachusetts to get the $199 refunded. She will still need to report and pay tax on it to New York. For New York, she is require to file because she did not have to file a federal return but the federal adjusted gross income plus New York additions was more than $3,100. She can file the federal for the refund because you have to prepare it for the New York return anyway and she should qualify for a no fee return.
In your screenshots, she should not have Massachusetts taxable income so the credit for taxes paid should not apply.
@Dannyapp
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