My wife and I have lived and worked in NJ for over 1 and 1/2 years. It looks like her employer screwed up and stated in box 15 that a portion of her income ($68463 of $176279) was Massachusetts income and withheld $3522 for MA. This is understating the NJ withholding by the same amount. How do I straighten this out on my federal and state returns?? We only earned income in NJ. W2 box 15 - 17 says NJ $176279 with $6125 withheld and just below that it says MA $68436 with $3522 withheld. Her total income was $176279.

If she never worked in MA, then she will file MA tax return and claim the refund.

If you are present in a state, then any income earned during this period, must be reported to the state.

To the state you live in, you must report your worldwide income for the year or for the residency period. If you paid taxes to another state, then you will claim credit for those taxes.

If you live and work is a state but your employer is from another state, then your income is only subject to the state where you live and work. Read: Your U.S. Tax Return: Working or Living in Two or More states

Paigow:

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