I requested a PA income tax refund since my wife's company in Virginia was withholding PA tax even though we lived in VA, however, PA rejected it. How should I proceed?

[Critter]

If you filed a non resident return then what was the reason for the rejection ?

[re2boys]

Was your wife's official work assignment in PA but she was allowed to perform the work remotely? In other words, a telecommuter.

[lehryan]

Thanks for the quick responses! We were living in Pennsylvania through mid-April. While in PA, she was working remotely for a company located in VA. However, in mid-April, we moved to VA and she began work at another company located in VA. This company decided to withhold PA taxes for some reason. When we realized that at the end of the year, I requested a refund for PA for the PA tax withheld on that income since she was living/working in VA. They adjusted my return and included the full year's income, not sure why.

[lehryan]

This is the explanation PA has given: As a non-resident/part-time resident working in Pennsylvania or receiving income from Pennsylvania sources, you are liable for payment of the Pennsylvania income tax. You may be able to claim a credit for taxes paid to Pennsylvania on your resident state's tax return.

You requested a refund, but our calculation of your return found that neither a refund nor a payment was due.

[Critter]

It may be a tough sell (and a letter of explanation from the employer who withheld to wrong state tax would help) but respond back and explain exactly what happened and why you don't owe PA taxes and ask them to reconsider their findings.

[Hal_Al]

A copy of your  lease or purchase for your VA home would go along way in convincing them you were no longer a PA resident

[re2boys]

A bit unclear as to how you filed.  Here's is what "should" have been done.  

1.  Completed federal return.

2.  Completed a PA part year return reporting ALL income earned while a resident of PA , regardless of where earned.  The program gives you opportunities to adjust the amount of income to be taxed by PA.

3.  Completed a VA part year return only being taxed on income earned while a resident of VA.

So you should have received a partial refund from PA.  As other have mentioned, if the VA employer withheld PA taxes while you were a VA resident, that is the source of the problem.  It's unclear when she obtained the VA job but her paperwork must have shown her as a PA resident.  You need to get her paper work corrected and a letter of explanation to PA along with some proof of her living in VA is in order.