Before I begin, it's important for you to know that refund or balance due is not exactly part of the equation or the amount of withholding. The tax liability is what comes into the equation and then a refund or a balance due would result based on whether the withholding covered the tax liability along with the credit for taxes paid to another state.
If your resident state is New York (NY) then all of your income is included (worldwide income) on your resident return. NY will allow a credit for tax paid to a nonresident state. Generally, this could offset any missing tax that wasn't paid to them on the same income. Prepare your nonresident state return first, then prepare your resident state return.
If your resident state tax is a higher rate, then all of the tax paid to the nonresident state will be applied. If the nonresident state tax withholding is at a lower rate than your resident state you will make up the difference when all the calculations are complete. In reverse, if the state withholding on your nonresident state is at a higher rate than your resident state, you do not get the difference refunded unless the withholding was more than you tax liability for that nonresident state. Your resident state will not refund any money they never received. The notes below will explain how it works.
The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income. As the resident state all worldwide income must be included.
The credit for tax paid to another state on the same income will be the lesser of:
- the tax liability actually charged by the nonresident state, OR
- the tax liability that would have been charged by your resident state
Please update here if you need further assistance.
@TDH19
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