My husband and I earn all of our income from NY State, and we live full time in the state of PA, our W2 box 15 says NY. Can we check the box on our PA return stating that all of the income is not taxable in PA ?
The general rule is: your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state.
You will have to file a non resident NY state return and pay NY tax on the income earned there. Since there was NY withholding, you may owe little or nothing or even get a refund. You will also file a PA full year resident return and calculate tax on ALL your income. PA will give you a credit, or partial credit, for the tax you pay NY. So, there will be little or no double taxation, but you have the cost and hassle of filing two state returns. Do the nonresident state return first.
To claim a credit on your PA return, go to Credit for Tax Paid to Another State. Say Yes to Did you earn income in another state in 2020?
If you prepared your non-resident return first, you should see NY information populating in the Taxes Paid to Other States Summary. Otherwise select Add a State and fill in the information.
NY taxes are generally higher than PA so you should not have to pay any PA tax on your NY income. However, you will have to report itؙ on your PA-40 and claim the credit.