1. Many changes have happened. You can file a VA joint return claiming all income and a credit for tax paid on the NY income. It is more confusing this year and requires you electing the path. The 760 Instructions page 7 state: Married Taxpayers: If one spouse is a Virginia resident and the other is a nonresident, you may not file a joint Virginia return unless you both elect to determine your joint Virginia taxable income as if you were both Virginia residents.
If you look at page 6 of the instructions, there was a big push this year on domiciliary vs actual residents among the northeastern states. They created a new agreement but VA chose not to join but has re-worded their rules to be more understanding.
Under the NESTOA Agreement:
Pennsylvania entered into the North Eastern States Tax Officials Association Cooperative Agreement (NESTOA Agreement) along with Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. This agreement addresses the taxation of dual residents (that is, taxpayers who are residents of more than one state due to domicile in one state and statutory residency in another).
The NESTOA Agreement provides that in a dual residency situation, the state to which earned income is sourced gets to tax the income. For non-sourced income, such as income from intangible assets, the state of domicile gets to tax the income.
For purposes of applying the resident credit in dual residency situations, the state of domicile must give a resident credit for earned income sourced to the state of statutory residence. For non-sourced income, the state of statutory residence must give the resident credit.
If earned income is sourced to a state other than the state of domicile and state of statutory residence, then the state of domicile gets to tax the income, not the state of statutory residence. If the state to which the income is sourced imposes an income tax, then the state of domicile would give the resident credit.
Note: The reciprocal agreements are not applicable in cases of a dual resident of the reciprocal agreement states. In such cases, the NESTOA Agreement applies.
2. If you want to file MFS, you can. You do not need to split things 50/50 since VA is not a community property state. You can split it in any reasonable fashion. As long as you can show a consistent method, that is fine.
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