I lived/worked in a state with income tax(NY), then I moved and started working in a state (WA) without income tax. Why did my NY refund drop when I added my WA W2?

[ToddL · Accepted solution]

Your NY refund dropped because NY used your WA income to calculate a new, higher tax on your NY income.

Even if you were a resident of New York for 1 day, NY uses your entire AGI to calculate your tax on NY income. 

It isn't, however, as bad as it appears. They calculate what your New York tax would have been if you earned everything in NY, but then prorate that tax based on how much of your income was earned while a NY resident. 

For example, if the NY tax on your entire 2016 income was $10,000, but only 30% was earned as a NY resident, your NY tax would be 30% of $10,000 = 3,000.

Why do they do this? So they can tax your NY income at the highest possible tax rate, based on your entire AGI.