It's because all worldwide income must be reported and taxed on your resident state return (PA). However, PA will give you a credit for taxes paid to NY on the same income. See the instruction below.
State Returns - Your resident state requires you to include all worldwide income. Assume both states require income tax returns to be filed:
- Report the income on each state return that is from the nonresident state
- Report it on your resident state and receive credit for taxes paid to another state.
Credit for taxes paid to another state is allowed by a resident state when the same income is being taxed to another state. Your resident state does not want you to pay tax twice on the same income. The credit that is allowed will be the lesser of:
- the tax liability actually charged by the nonresident state, OR
- the tax liability that would have been charged by your resident state
In most cases complete your nonresident state first. TurboTax will carry the appropriate credit. If you didn't prepare in the correct order, simply write down the NY taxable income and the NY tax liability from the NY interview, then enter the information in the PA return.
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