I work for NY based company and as an IT consultant. My actual work location is at the client's office which is in NJ for the whole of 2007. I also live in NJ. Will my income be considered as income earned in NJ or NY? My employer has withheld NY taxes though I live in NJ and my work location is NJ. Should I file return for both NJ and NY?Please explain.

It sounds like they should have withheld NJ taxes and not NY taxes. You should talk with a tax professional.