PA Taxable income

[dpaules]

My partner and I both work for employers in PA and live in DE. Due to pandemic we were both working from DE 100% of the 2021 year. PA and Delaware do not have reciprocal tax agreements. However, DE will consider any taxes paid to PA as a credit toward our DE tax liability.

His employer (based in PA) reported taxable wages to PA and withheld tax for PA on his W2. Is this income taxable by PA? If not, how do I tell turbotax that 100% of his wages were earned while out of PA state? The Schedule NRH wage Allocation Requirements screen has confusing options.

My employeer (also based in PA) reported taxable wages to PA on my W2, but left box 17 empty (implying no PA tax was withheld). Do I need to file a PA return since wages were reported but no tax withheld? If so, same question re: how to indicate 100% was earned outside of PA?

[RobertB4444]

Yes, you both need to file a nonresident return for Pennsylvania and a resident return for Delaware.  Make sure to do the nonresident Pennsylvania return first since Delaware will give you credit for any taxes paid to Pennsylvania.

Here is some more information on the topic.

[dpaules]

How do I tell turbotax that 100% of our wages were earned while out of PA state? The Schedule NRH wage Allocation Requirements screen has confusing options.

[AmyC]

Yes, the PA wages are considered taxable income to PA. PA states in Income Items Always Taxable as Pennsylvania Compensation: salaries and wages. You are correct that DE will give you a credit for the lower of tax on the income. 

Please carefully follow these directions  to prepare the states in a special order. You may need to delete both states and begin again.

1. First, prepare your non-resident PA return for all wages. This creates your tax liability for the non-resident state. How do I file a nonresident state return?
2. Then prepare your resident state DE return and it will generate a credit for your income already being taxed in the non-resident state.
3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state if they have a higher tax rate.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.