If I work remotely and live in Michigan and my employer is in New York, how does that affect my state taxes in both states? Do I have to pay taxes for both states?
The issue is why you are living in Michigan while working for a New York company.
If you are in Michigan "for the convenience of the employer" - that is, because your employer wanted you there rather than in New York - then your wages would be taxable in Michigan.
However, for most employees in your situation who are living in another state for their own convenience and not at the employer's requirement, then you are required to report your wages as New York source income, taxable in New York on your NY nonresident return.
Do your NY return first, then do your Michigan resident return. In this way, your NY tax will find its way to line 18 on your Michigan MI-1040, to reduce your Michigan tax owed.
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Thank you! So far the employer is saying that deducting taxes for New York isn't necessary, only Michigan taxes need to be deducted. I don't want to get a surprise at the end of the year and have to pay New York thousands of dollars and possibly a penalty of some sort! Is there a link or something that I can forward to them to reference?
Don't try to overanalyze this - if your employer is reporting your W-2 earnings as "MI" sourced (ie. Boxes 15-17 only refer to MI, not NY), then file your MI return and don't worry about NY.
It is a long-standing principle that an employee's wages are taxable in their state of residence and in the state where they perform their work. Since you performed the work in MI and are a resident of MI, then your wages are definitely taxable by MI.
A minority of states, however, utilize convenience of the employer (COE) rules to determine how nonresident remote employees should be taxed on their income. These states currently include Connecticut, New York, Pennsylvania, Arkansas, Delaware and Nebraska.
As @BillM223 stated, "If you are in Michigan "for the convenience of the employer" - that is, because your employer wanted you there rather than in New York - then your wages would be taxable in Michigan." It is reasonable to presume your employer is aware of NY rules and has concluded you are working in MI for their convenience.
You can ask your employer to confirm this - send them this article for a detailed discussion and the rules on What is New York's "Convenience of the Employer" Rule All About?