Question:
I live in Maryland and work in Virginia.
Answers:
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.
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.
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/inc...
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