What state or states do you work in? Income that you earn for working in any state is taxable by that state. All of your income is taxable by the state that you live in, no matter where the income is from. You should get a credit on your Kentucky tax return for tax that you pay to other states that you worked in.
If you did not live or work in Maryland, your employer should make the correction and adjust your pay and payroll records accordingly. Your W-2 at the end of the year should show the correct wages and tax withheld for the state or states that you actually worked in, and no wages or tax withheld for Maryland if you did not live or work there.
It makes no difference where the agency that pays you is located.
If your W-2 shows Maryland wages, and you file a Maryland tax return showing no Maryland income and claiming a refund of all the Maryland tax that was withheld, you will probably get a notice from Maryland saying that your tax return is wrong and that you have to pay tax on the Maryland wages. You would then have to try to convince them that you did not actually work in Maryland, even though your W-2 shows that you did.
Kentucky has reciprocal agreements with Illinois, Indiana, Michigan, Ohio, West Virginia, Wisconsin, and Virginia. As a Kentucky resident, if you worked in any of those states you pay tax only to Kentucky, not to the state that you worked in. So in those cases no tax should be withheld for the state that you worked in.
