Credit for DE taxes in PA

[CBW66]

I live in PA but work in Delaware . When I do my taxes in Turbo Tax, it is only crediting part of the taxes that I pay to Delaware towards my PA taxes.  This is because it is only including a part of my income because DE deducts 401K and HSA contributions, but taxes at a higher rate, so total taxes are higher than PA. For example if I make $100,000, and contribute 40,000 to my 401k and HSA, my DE taxes only use 60,000 to get their taxes of roughly $3200.  The G/L form in Turbo Tax only credits the PA tax on 60,000 to get roughly $1800 in credits rather than the full $3200, but then I get taxed again on the remaining $40,000 at the PA rate.  Should Turbo tax really be using the full amount,100,000,  so that the full DE tax is credited?  Is there a mistake?  My DE tax entry on the W2 does show the subtracted value but my full salary is a DE salary not a PA salary.  I feel like this is wrong and I am double taxed on state.

[AmyC]

No, let me explain.

$100k - 40k pretax deductions = $60k taxable income to federal and DE, correct. 

This $60,000 is being double taxed in PA and DE so PA gives credit for the income being double taxed.

You get credit for the lower state tax on the lowest taxable amount.

• Each state calculates taxable income differently. 
• Each state has its own tax rate/ system.
• You get the lowest of both categories as a tax credit.

PA is one of the few states that tax retirement so the $40k is added and taxed, not related to the double taxed income. No DE credit can cover this $40k since it isn't related.