DE & PA Credit for Taxes Paid to other States

[Zee]

Can anyone help with this? I use Drake and am having trouble figuring out how to handle this. Several years ago I had a situation where the credit wasn't allowed, but I don't remember why.

One spouse lives and works in DE the entire year with DE taxes withheld. The other spouse worked the entire year in PA, but moved to DE April 1st. DE & PA do not have reciprocity. As such, PA taxes taxes were withheld for the entire year.

I have several questions. (1) What type of return should be filed for each state (Resident, Non-Resident, or Part-Year Resident)? (2) Should the PA refund be requested from PA, or shown as a Credit for taxes paid to another state on the DE return?

[BP.]

This is for the spouse employed in PA: And I'll assume they were a PA resident prior to their DE residency. That spouse files PA-40 as a part year resident. All taxes are paid to PA because of employment in PA. (Non-reciprocity, as you know.) This spouse also files either DE 200-01 (Res) or DE 200-02 (Non-res). They can choose which one to file; either is allowed for part yr res. They'll take a credit on the DE for the taxes paid to PA on the income earned while a DE resident.

The spouse employed and residing in DE can file DE 200-01. I'd probably consider doing these all MFS, with the residency changes, but you can check which filing status is best.

[Zee]

This is for the spouse employed in PA: And I'll assume they were a PA resident prior to their DE residency. That spouse files PA-40 as a part year resident. All taxes are paid to PA because of employment in PA. (Non-reciprocity, as you know.) This spouse also files either DE 200-01 (Res) or DE 200-02 (Non-res). They can choose which one to file; either is allowed for part yr res. They'll take a credit on the DE for the taxes paid to PA on the income earned while a DE resident.

The spouse employed and residing in DE can file DE 200-01. I'd probably consider doing these all MFS, with the residency changes, but you can check which filing status is best.

Thanks BP! I'm still mixed-up (not sure where my head is today).

Using Drake, I prepared a PA part-year resident for the spouse working in both states using PA income. The PA withholding carries forward automatically from the W2 input screen resulting in a large refund on the PA return.

The resident return (for both spouses) in DE calculates the credit based on the amount of taxes owed to PA based on the PA income tax return.

So, there is a DE credit for the taxes paid on the PA income only, but not for the entire withholding which will cause the client to make a payment in DE and wait for the PA refund.

That doesn't seem correct. Again, I had this situation a long time ago when I was practicing in PA causing a refund delay. I don't remember the details.