Which state to process first NY or NJ?

[gphere]

If we live in NY but my wife works in NJ which state tax should we process first, NY or NJ? Thanks!

[DianeW777 · Accepted solution]

Definitely New Jersey (NJ).  Always prepare the nonresident state first to obtain the credit for taxes paid to another state correctly.

Here is how the credit works:

The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  As the resident state all worldwide income must be included.

The credit for tax paid to another state on the same income will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

Watch your New York (NY) return as you go through to be sure you see the credit.