Here is what you need to know (that the experts above know but aren't quite explaining 😉
When you live in one state and work in another, the general rule is that you file a non-resident return in the state where you work, to pay income tax on the income earned in that state. Then, you file a resident return for the state you live in, and you report and pay income tax on all your worldwide income and deductions, including your other-state income. You get a credit on your resident return for your out of state tax paid, so that you aren't double taxed. For example, if your MD tax on your MD income was $3000, and your VA tax was $3005, you would pay $3000 to MD and $5 to VA. For this to work best in Turbotax, you prepare your non-resident return first and your resident return last so the credit is properly applied.
When you work in one state and live in another state and there is a tax reciprocity agreement, this first method still works and is perfectly legal. However, there is also a second method. You file a special form with your MD employer telling them that you are a VA resident and you want them to withhold only VA tax. Then you only file a VA tax return. This does not really change your overall tax but it does make tax filing simpler.
So if you want to use this method going forward, you will want to file that form with your employer before January 1, 2018. However, for 2017, since MD tax was withheld, you can only use method 1 for your 2016 and 2017 taxes.
If VA has a problem with your 2016 taxes, then you need to check your tax returns and see what you actually filed. You should have filed a MD non-resident return and a VA resident return that lists your MD tax as a VA credit. And, both these tax returns need to have been filed, processed and accepted by the respective states. If one or both of the tax returns was never accepted, print it out, sign it, and file it now. If both returns were accepted, you should probably mail VA a copy of your MD tax return showing the tax you paid and the credit you claimed on the VA return (from using method 1).
If VA thinks you owe tax for 2016 then either the VA return was never received -- so they think you owe full VA tax and aren't giving you credit for MD tax because you didn't claim it -- or the MD return was never received so MD has been unable to verify to VA that you actually paid the MD tax you claimed a credit for.
Start by carefully examining your tax return to see what you actually claimed.
