I live in NYC and work in NJ. My paycheck withholds all NJ taxes but no NY taxes. Just to clarify, when I go to file in April, NY will take all my wages I earned in NJ and tax them based on a NY state tax and a NY city tax, right? I understand I can use the NJ taxes I paid as a credit, but will most likely owe NY money because of the additional city tax that was added. Am I correct in this process? Lastly, is there a penalty for not having and NY state or city tax withheld from my checks? Should I have any NY taxes withheld from my paycheck?Thanks

It's likely that you will owe little NY State tax, due to the credit that you mentined, However, you are correct that you will also owe NYC resident tax (which actually is figured on the NY State income tax return). So I would suggest that you talk with your payroll department so that they can start withholding NYC resident tax. If they won't, or can't, you should consider filing quarterly estimated tax payments yourself to avoid any penalties for under-withholding.