I sometimes work in a state that has a state income tax but I live and work mostly in a state that does not have a state income tax. My employer has been deducting state taxes (for the state that has an income tax) on all my earnings even though more than half the time I do not work in that state. I cannot recoup these taxes because they report all my earnings as earnings in that state. They say that their payroll system cannot handle changing from week to week based on where I acutally work, even though I know the payroll system can handle it but it is more work for them. So I am being over taxed. Is this illegal? What is my recourse?

First you must figure out which state is your tax home. In the state that is your tax home, report your worldwide income for full year. Also in this state claim credit for the taxes paid to the other state. Your U.S. Tax Return: Working or Living in Two or More states (http://taxipay.blogspot.com/2008/06/working-in-two-or-more-states.html)

Roan:

Claiming a credit on your residency state tax return will NOT work for you, since your residency state has NO state income tax.

You will have to pro-rate your salary between the working state and the residency state by filing as a "non-resident" of the working state. You will need a signed memo from your employer detailing WHEN you worked inside the working state and when you worked inside the residency state to support your pro-ration calculations. Attach this memo to the tax return when you file the return, or, most likely, the state will reject the pro-rated return.