My employer took taxes out of another state and I do not live or work there,

If you don't live or work in a certain state then they should not withhold taxes for that state. You should talk to the payroll department and have them (1) stop withholding for that state immediately, and (2) see if they can reverse the withholding that has already occurred. They certainly should be able to reverse withholding in the current calendar year, but may not be able to reverse the withholding that occurred in 2012 or earlier. If this is the case then you will have to file a non-resident tax return with that state, showing $0 income earned in that state, and get your full refund. Finally - going forward be sure to always review your pay statements to make sure your employer is withholding the appropriate taxes.

When you file for the full refund, attach a copy of the state tax return on which you DO file and pay taxes. It will answer questions before they be asked.