I work in PA and live in NY state. My employer is with NY taxes, shouldn’t they with PA taxes or doesn’t it matter, as long as I file both states?

[Fred011]

*withholding PA

[DianeW777]

It doesn't matter as long as you file both states. They could withhold Pennsylvania (PA) taxes to help you out because you are required to file both state returns. You do want them to continue to withhold your resident state because it is likely a higher rate than PA. New York (NY) and PA do not have a reciprocal agreement.  And for this reason, PA does want their share of the tax for money earned while working there. 

• Note:  File the nonresident state return (PA) first so that TurboTax knows the amounts to use for your credit on NY. 

The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  As the resident state all worldwide income must be included.

The credit for tax paid to another state on the same income will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

[Fred011]

As a follow up question, although my employer is taking out NY state taxes they also are taking out taxes for the local city in PA can I also claim that back?

[ThomasM125]

You would not normally be able to get a refund of taxes paid to a city, as they are based on the income you earned while working or living there. You would have to research the tax laws regarding that city tax to be sure though.