[arel]

If someone lives in Vermont and works in Massachusetts, does he or she pay income tax in Vermont, the residence state, or in Massachusetts, the work state? Or is the tax split between the two states? Or, God forbid, is the income fully taxed in both states?

[domc]

- MA requires that MA-SIT be withheld for employees who are non-residents but work in state.
- MA and VT do not have any agreements that make them play nice with each others withholding (called "reciprocal" agreements).
- VT allows but does not try to require out of state employers to withhold VT-SIT for their residents. Past that, if your employer does not already have a legal tax presence in VT (called "nexus"), it is extremely unlikely that your employer would even entertain the notion of VT-SIT withholding unless they already have an established business presence.

Meaning that you can probably get your employer to handle MA-SIT withholding, although they will just be following your instructions on how much (not the employer's issue), but it is very unlikely that the employer will handle the VT-SIT for you. Meaning some sort of deposits on your part directly to the state. Also meaning, you probably need to talk to someone as was suggested.

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No direct effect on federal taxes. Indirectly, actual state taxes impact how federal taxes are calculated. But again, talk to someone and do the whole thing all at once.

What that means is that you will likely have to file a resident tax return for VT, and a non resident tax return for MA.

You will also likely get some credits back and forth for taxes paid to the other state.

Its also likely that you will need a tax professional to help you navigate the two state returns, as that situation tends to be quite complicated.

[Sierrajeff]

Typically you aren't double taxed, but you are taxed at the higher rate of the two states - basically you owe taxes in both states, but (typically) you can deduct the taxes paid to one state from the taxes owing to another (which is why you wind up paying the higher of the two rates). I'd be surprised if VT and MA didn't allow this, given that they have a common border and everything, but I'm not an expert and I second the call to find a good (cheap, local) tax accountant. Maybe someone in Bellows Falls VT or western Mass who might actually come across this on a somewhat regular basis.