Estimated state taxes

[pasuarez]

I work in Montana which has a higher tax rate then my state of residency which is Pennsylvania.  So PA does not require me to pay taxes a on the out of state income.  However, Turbotax  has estimated tax payments for PA.  Last year they gave me a refund.  So, I am not sure whether I should pay these estimated taxes.  I do do want to face a tax penalty.

Any advice/ suggestions?

[TomD8]

"So PA does not require me to pay taxes a on the out of state income."

Not so.  If PA is your state of residence it can tax all your income, regardless of where you earn it.

Additionally, MT can tax income you earn from work you perform in Montana.

You'll be able to claim a credit on your PA tax return for the taxes paid to MT, so you won't be double-taxed.

Are MT and/or PA taxes being withheld from your pay?

[pasuarez]

Thanks for your help. I am self employed so I am paying estimated taxes. I wasn’t sure if I should pay them to PA because they apply the MT taxes as a credit and last year they sent me a refund. So to avoid the possibility of a penalty I will pay estimated taxes for PA?

[SundayInSalem]

It depends whether you have other income. As Tax Champ @TomD8 said, “You'll be able to claim a credit on your PA tax return for the taxes paid to MT, so you won't be double-taxed.”

The credit only applies to your double-taxed Montana income. Additionally, PA will only credit the amount of PA due on the same income. For example, if the MT tax on your self-employment is $1,000 and the PA tax is $800, you don’t get an extra $200 ($1,000-$800) to offset PA tax from non-self-employment income. Your credit in this example is limited to $800.

Therefore, if you have other income without any PA withholding, such as from interest, dividends or capital gains, then you can pay estimated tax to avoid penalty.