If I have a NY income but live in NJ, and my wife has NJ income. Why NY calculating state tax based on our joint income?

[KarenJ]

New York calculates NY nonresident income by first looking  at all of your income from all sources and generates a tax on all this income. When NY is determining the actual NY state taxes owed, NY multiples the total NY taxes on all income by the percentage of NY source income over all source income.

So if your income from all sources is $10,000 but your NY source income is $8,000, NY will calculate the NY state tax on $10,000 then multiply the total state taxes generated by 80% ($8,000/$10,000). So even though you all your income is being reported on your NY state tax return, you are only being taxed on the NY source portion of your total income.