I live in New Jersey but work in New York. On my NJ return, why is the credit for taxes paid to other jurisdictions less than what I actually paid to NY?

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In most (if not all) states, the credit for taxes paid to another jurisdiction is limited to the amount of tax your resident state would have assessed on the income taxed by the other state.

For example, if the tax rate in state A (non-resident) is 5%, but the tax rate in state B (resident) is 4%, and you earned $1000 in state A: you pay $50 to state A, but state B's credit is limited to $40.
  • I think Turbotax messed up in this area. I have income earned in both NJ and NY. NJ income gets taxed less when you're in the lower bracket and progressively increases from 1.4% to about 9%. There is less progression in NY state meaning that income in the lower brackets gets taxed more then when compared with NJ.

    Turbotax is calculating my credit based on my NJ rates at the lower rate (1.4%) when it can be argued that using the higher rate is appropriate. Turbotax basically says that I earned my NY income first then my NJ income. If you flip that assumption and say that I earned my NJ income first then NY then I should be able to claim the entire NY tax liability as a credit. I'm going to make the manual change on my forms.
  • I suggest you read this first: http://www.state.nj.us/treasury/taxation/pdf/pubs/tgi-ee/git3w.pdf
  • Thanks for the response. I will look over the article.
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