I live in PA but work in NJ. My W2, LINE 15 has taxes withheld for both states. Why is this and how would I properly file taxes? *** I lived in PA for the entire year.

[DS30 · Accepted solution]

[edited] The reason you have withholding from both states may be because you did not file an exemption form with your employer. If you do not want you employer to withhold NJ state taxes, you need to file a form with your employer.

Under the agreement with Pennsylvania, New Jersey does not require withholding from wages, salaries and other compensation paid to Pennsylvania residents, provided Form 165, Employee's Certificate of Nonresidence in New Jersey, is filed with the employer. The certificate is retained by the employer and one copy is sent to the New Jersey Division of Taxation. If a certificate is not filed, the employer must withhold tax in the same manner as from any other employee.

Since there is a reciprocation agreement between PA and NJ, you will not be able to get a tax credit on your PA return for NJ withholding taxes. You will need to file a nonresident tax return in NJ but report no income so that you can get a tax refund for your NJ withholdings. You will then report all of your income on your PA tax return.

For more information about the agreement between NJ and PA, please refer to this link:

http://www.revenue.pa.gov/Pages/default.aspx#.VrvOM9rTmM8

Here is additional information about filing in multiple states

https://ttlc.intuit.com/questions/1900021-when-would-i-have-to-file-returns-in-more-than-one-state

[re2boys]

Incorrect.  PA will not give you a tax credit for taxes paid to NJ due to the reciprocal agreement between the two states.
Prepare the non- resident NJ return but show NO income such that you get a full refund of all NJ withholding.  I'm assuming your only NJ income is wages.
Then file a PA resident return showing ALL income, including that earned in NJ.
And get the form filed with your employer so no NJ income taxes are withheld next year.

[DS30]

see updated answer.