Hello

I was living and working in MD (just outside DC) in the first half of 2009. Then we bought a house and moved residence to DC. I understand I need to pay part-year taxes in both MD and DC.
The problem is for some reason our company's outsourced HR contractor only withheld my state taxes in MD for the entire year. I noticed this when the W-2 was sent to me and now our contractor has issued me a corrected W-2c.

My question is can DC and MD settle accurate taxes owed on my income between themselves. In other words, is there a form where I can disclose the tax that was paid to MD, amount overpaid to MD and amount transferable to DC?

If not, then am I supposed to pay taxes along with penalty and interest to DC?

I will appreciate any help in this regard!

For 2009 you will have to file as a part-year resident of both MD and DC. For MD - because you worked there all year you pay taxes to them on your total wages earned in MD for the year, plus any additional income you may have had while you were a resident there (on investments, for example). For DC - file as a part-year resident, reporting your total income for the time you lived there, but you take a credit for taxes paid to other jurisdictions (namely MD). You will probably find that you owe DC little or no taxes (unless you have significant outside income).

For 2010 you should take advantage of the reciprocal tax agreement between MD and DC - this allows your employer to withhold DC tax (rather then MD), and you don't have to file in MD as a non-resident even though you work in MD. This way you'll only have to file a DC return next year. See: http://forms.marylandtaxes.com/current_forms/mw507.pdf

Thanks for the insight!