Living in Delaware but working in Maryland

[stevef]

My wife and I are residents of Delaware but my wife works in Maryland. Her Maryland employer says that Maryland does not have reciprocity with Delaware so they withhold Maryland Taxes on her income but no Delaware tax. When we file our taxes, all of the Maryland taxes that were withheld are refunded, but then we owe a substantial amount for Delaware income tax on that income and the Maryland tax refund is subject to federal tax in the next tax year.  Is there a better way of handling this so we don't have this issue at tax time? It seems silly to have Maryland tax withheld just to have it all refunded at tax time and then owe Delaware taxes since there was none withheld throughout the year.

[AlexanderS08 · Accepted solution]

In a situation like this there are many different ways of handling it, and what you have done is just fine, even if a little frustrating. 

To the extent that you wish you were able to have less of a refund from Maryland so that you do not have to expend additional money while you wait for your refund (in other words, if you withhold less then in theory more will be available to pay to Delaware), you can ask your employer to decrease Maryland tax withholding.

It is always a good idea to complete your non-resident tax return first. If, in the future, you and your wife do end up owing Maryland income tax for her work, you would want to make sure that on your Delaware return that you claim a credit for taxes that you paid to another state, in this case, Maryland.

[stevef]

Thank you very much! Your response was very helpful!