MD & PA state reciprocal inquiry for Business Net Income

[byrdiarchi]

I am a resident and live full-time in MD and my only source of income is business income (Schedule C) derived from work in PA.

• Should I file a MD resident state (and local) income tax return to report all income from all sources (including my PA net income)?
• Should I file PA non-resident state income tax return to report $0.00 for all income since I have reported all income as a resident of MD?
• Should I file a PA non-resident local income tax return to report $0.00 for all income since the MD resident state and local income tax return automatically includes local income tax reporting?

Most information on the state reciprocal agreement between MD and PA refers to employer withholding and wages. How is business income reported with the state reciprocal agreement between MD and PA? Do I get taxed twice?

[MaryK4]

You will have to file a nonresident Pennsylvania tax return to pay tax on the income you earned in Pennsylvania for self-employment.  You will also have to report the income to your resident state Maryland, but you will be able to claim the credit for taxes paid to another jurisdiction on the Maryland return.

Under the reciprocal agreement, one state will not tax a resident of the other state on compensation subject to employer withholding, so it applies only to W2 income.

[byrdiarchi]

Thank you. How should I file with MD and/or PA, if I have already paid 2024 Estimated Income Tax Payments to MD for the business income (Schedule C) derived from work in PA?

[DawnC]

You will enter your estimated tax payments on the federal return, then prepare a PA nonresident return where you will only allocate your business income.  Then, to finish your taxes, you will prepare a MD resident tax return.  

Enter your estimated payments you made in the federal section before you start your state returns.   TurboTax will automatically apply those to your MD resident return.   Where do I enter my estimated tax payments?

Prepare the PA nonresident return before you do your resident return.   How do I file a nonresident state return?

Then when you prepare the MD return, TurboTax will already know the amount of tax you have to pay to PA and can apply a credit for Taxes Paid to Another State on your resident return.