I work for and receive salary from, a company based in VA. I work in Boston, MA at the location of a Client of my employer. I live in NH and commute to MA. Which State Tax my employer should withheld and Where should I file my Tax Returns? Is it VA because the source of Salary is from VA based company. OR Is it NH because I live in NH. OR Is it MA because My employer gets paid from MA based source for the work I performed?
Thanks a lot for your expert advice.

Ksnvas:

Where the company is based is irrelevant. The key issues is where you work and where you live. For this reason, no Virginia income taxes should be withheld.

For sure you need to have Massachusetts income tax withheld, because Massachusetts expects to be paid taxes for income earned within its state borders, and they offer no credit for other taxes paid on that Massachusetts-based income.

New Hampshire will also want to tax this money, but will offer at least a partial credit for income taxes paid to Massachusetts. Since Massachusetts is a high-tax state (I believe up to 11%), it is likely that the NH credit offered for Massachusetts income taxes paid will completely offset the NH income tax liability.

You will need to file at least Massachusetts and New Hampshire state income tax returns. If your company mistakenly withheld Virginia taxes, you will also need to file a Virginia state income tax return to get your withheld taxes back. When you file these multiple state returns, be sure to attach copies of the other states' returns to avoid complications.

The complexity of this issue suggests that you should probably get a tax professional to help you. I am available if you do not mind working via e-mail/fax/phone/USPS. You will find my rates very competitive with the local preparers, and I have references from clients who have found me via the Internet (like you), used my services and whom I have never met in person. If you are interested, contact me at [email protected].