During complete year 2008, I worked and lived in Louisville, KY at client site but my employer is NJ based so they withheld taxes for state NJ in my pay check? I am not sure what forms I have to fill for NJ and KY to pass on tax credits to KY from NJ? I would really appreciate your help.
Thanks in Advance.

You should talk to your employer ASAP to see if they can stop withholding NJ taxes and withhold KY instead, because otherwise it's a bit messy for you. Heres' what you have to do:

1. Complete a NJ tax return as a non-resident. Since you have no NJ based income and don't live there, your tax bill is $0 and you should get a complete refund of all taxes that were withheld for NJ. That's the good news.

2. Then complete a KY tax return as a full-year resident. You will most likely find that you have a big tax bill due them, since no taxes ere withheld for KY. So be prepared to write a substantial check. There is no way to have NJ credit the taxes that were improperly withheld over to KY - you have to be the bank for this. With luck you may get the NJ refund befoe you have to cough up the tax payment for KY, but I doubt it.

Something to be aware of is if your employer continues to fail to withhold KY tax you may be subject to interest penalties for underpayment of taxes to KY during the year. You should look into filing estimated tax payments with KY on a quarterly basis to avoid these charges. Again - as long as you don't have KY taxes withheld from your paychek you have to come up with these funds yourself.

Bottom lineis because your employer is too lazy (or cheap) to get a KY tax ID, you are on the hook for bankrolling NJ

You should talk to your employer ASAP to see if they can stop withholding NJ taxes and withhold KY instead, because otherwise it's a bit messy for you. Heres' what you have to do:

1. Complete a NJ tax return as a non-resident. Since you have no NJ based income and don't live there, your tax bill is $0 and you should get a complete refund of all taxes that were withheld for NJ. That's the good news.

2. Then complete a KY tax return as a full-year resident. You will most likely find that you have a big tax bill due them, since no taxes ere withheld for KY. So be prepared to write a substantial check. There is no way to have NJ credit the taxes that were improperly withheld over to KY - you have to be the bank for this. With luck you may get the NJ refund befoe you have to cough up the tax payment for KY, but I doubt it.

Something to be aware of is if your employer continues to fail to withhold KY tax you may be subject to interest penalties for underpayment of taxes to KY during the year. You should look into filing estimated tax payments with KY on a quarterly basis to avoid these charges. Again - as long as you don't have KY taxes withheld from your paychek you have to come up with these funds yourself.

Bottom lineis because your employer is too lazy (or cheap) to get a KY tax ID, you are on the hook for bankrolling NJ

Thanks for you excellent detailed answer.
As you said, my employer is cheap to get tax id in KY as I was the only one person working in KY for him. Anyway I have left him now, so should not have this problem next year.

Do you know what form should I file for NJ to get complete refund of withheld tax.
Also if I get complete refund of withheld tax from NJ, will these create any problem for my Employer as he is not registered in KY?
Thanks again for your valuable help.

For NJ, file form NJ-1040NR.

Shouldn't create a roblem for your employer, but as I said earlier it MAY cause a problem for you if you are tagged by KY for underpaying your KY tax bill during the year.