Do they take more taxes out of your pay when you work and live in different states?

Question

I live in Maryland and work in Virginia.

taxes are higher in Virginia

Answer 1

Not necessarily. If you live in a state that doesn't have an income tax, and also work in a state that doesn't either, you'd have no tax taken out of your paycheck. Most states though have agreements with other states to give a credit to the taxpayer for taxes paid to another state. But it's not always a $ for $ credit. It's usually the lessor of the tax paid to the other state or the tax on the equivalent amount in the state you live in. If Maryland has a lower tax rate than Virginia then your credit from Maryland for taxes paid to Virginia would be lower than the taxes paid to Virginia. If Maryland has a higher tax rate than Virginia than you'd still owe taxes to Maryland after the credit for what you paid to Virginia. You'd be filing a Maryland resident return, and a Virginia non-resident return.

Answer 2

You only pay taxes for Virginia but you have to file returns for both states. The Maryland return should give you credit for the taxes you paid to Virginia.

I don't know which state taxes are higher -- Maryland or Virginia, so it's hard to tell if you are paying more than someone who both lives and works in Maryland.

Answer 3

Unless the states have a reciprocity agreement between them you will effectively pay income taxes at the higher of the 2 states' rates for the income earned outside the state of your legal residence.

MD and VA have a reciprocity agreement in place so you will ONLY pay income tax in MD. Here's a link, straight from the horse's mouth: http://individuals.marylandtaxes.com/incometax/outsidemd.asp