I am a nj resident who just accepted a job with a Maryland corporation, and I will be physically working in an office in Maryland. Should my employer withhold md or nj state income tax from my check? I know for a fact that the company pays unemployment insurance to the state of New Jersey, which means they have nexus in the state, so shouldn't they withhold nj income tax also, and not md?

You pay state tax to the state that you live in so they should withhold NJ tax.

The exception to this law is (and might not be universal) that if your state of residence does not have income tax, you pay in the state that you work (I used to live in NH with no tax but paid state income to MA where I worked)

Actually, you will need to file tax returns for BOTH Maryland and New Jersey.

Maryland will tax your income because you earned it in Maryland.

New Jersey will tax your world-wide income because you live in New Jersey.

You avoid double taxation by claiming a credit on your NJ tax return for income taxes paid to Maryland. Note that it is prudent to attach a copy of your Maryland return to your NJ return when you file the NJ return; it answers questions before they can be asked.

Because of the tax credit and the fact that Maryland's tax rates from $3K to $150K is HIGHER than New Jersey's tax rates, have your employer withhold ONLY Maryland taxes. The credit for the Maryland taxes paid will offset any tax liability from New Jersey on your New Jersey tax return.

ATE is correct - you should have MD tax withheld. In most cases when you live in one state and work in another you should have tax withheld for the state where you work - not the one where you live. If you live in a state with a signficantly higher tax rate than where you work you may want to consider filing estimated income tax each quarter with your home state - but as ATE pointed out that's not the case here. Or if you work in a state with no income tax and live in a state with tax (for example, if you live in MA and work in NH) you should ask your employer to have tax withheld for your home state.