Your daughter has to file two state tax returns, a Massachusetts resident tax return and a Connecticut nonresident tax return. The money she earned for working in Connecticut is subject to Connecticut tax. Since she is a Massachusetts resident, all her income is subject to Massachusetts tax, no matter where the income is from. So yes, she has to show all her income on her Massachusetts tax return. She will get a credit on her Massachusetts tax return for part or all of the tax that she pays to Connecticut. She should prepare her Connecticut nonresident tax return first, then her Massachusetts resident tax return, so that the credit will be calculated properly.
TurboTax should lead her through the preparation of the two state tax returns, after she completes her federal tax return. The appropriate information will flow to the state tax returns from the federal tax return. I don't understand why it is saying that she needs a new W-2. She might have entered something incorrectly or answered a question incorrectly. What is the exact message from TurboTax about the W-2, word for word? Post a screen shot of the message if you can, but exclude any personal information. This is a public web site.
Having Connecticut tax withheld, and not Massachusetts tax, was correct.
