As an employee in Chester, Pa., and a resident of Delaware, how come I receive no refunds from the Pennsylvania and Chester taxes withheld when I pay Delaware tax every year?

Delaware and Pennsylvania are not reciprocal states. That means that your employer is required to withhold Pennsylvania tax instead of Delaware. However, when you file your Delaware return, you can take a credit for taxes paid to Pennsylvania on the same income.
 
The Chester local tax is somewhat different. Local tax in Pennsylvania is withheld at the higher of the nonresident rate where you work or the resident rate where you live. Since you don't live in Pennsylvania, that means that you would automatically be withheld at the nonresident rate where you work. You do get a credit on your Delaware return for taxes paid to other states, but you do not get a credit for taxes paid to other cities. Therefore, you pay the Chester tax because you work in Chester and the Pennsylvania tax because you work in Pennsylvania, but you only get a credit against Delaware for the Pennsylvania tax.

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Answered by: David A. Caplan, CPA, is a sole practitioner in Lafayette Hill, Pa.