why am I getting taxed on money I didn't make in New York

[DeeDee62]

I live in NY and work in pa. I filed a pa state return already. Now I am trying to file federal and NY return. I filled out the information for tax credit for paying income to pa but why am I owing money to N Y on my money earned in pa. On top of that it says I owe a penalty for not paying enough money in. The only money I should owe is on my interest income from bank.

[MindyB · Accepted solution]

The reason you still owe New York money is because as a resident of New York, you are taxed by NY on all your income, regardless of where you earned it. Since you worked in PA, PA also taxes that same income.

To prevent double taxation, New York gives you a Resident Credit for the taxes you paid to PA. However, PA’s tax rate is a flat 3.07% and NY’s tax rates are graduated and much higher (starting at 4%).  Therefore, the credit for what you paid to PA only covers part of your NY tax bill. You are only paying the difference between the two states to NY.

To prevent this issue in the future, I highly recommend remitting quarterly estimates to NY to prevent interest and penalties going forward.