One's Marginal State Income Tax Rate

Q: My wife lived in New York for about half of 2004 and earned about $25 K. She lived in another state for the rest of the year, and I did not reside in NY or work in NY during the year. Her marginal income tax rate in NY would be low, based on only her NY income, but it would be much higher if based on our joint income for the whole year. What determines one's marginal state income tax rate -- the income in that state, or the overall income of both spouses in all states? Is the answer specific to New York or general to most/all states? I am trying to determine how much we would save in taxes by contributing to the NY 529 college savings plan, for which I believe New York offers an income tax deduction.

A: -Per the IT 203 instructions, when one spouse is a nonresident with NY source income or a part-year resident, and the other spouse is a full year nonresident with no NY source income, and they file a joint federal income tax

return, they must file a joint return for NY. The NY form calculates the tax as if both spouses had been residents for the entire year, and then prorates the tax by the ratio of NY income (e.g., your wife's NY earnings) to total income. The result is to tax her NY source income at the same average rate that would have applied if you had both been full year residents of NY. The only way you can file separate returns for NY is to file separate federal returns. -New York, like many (but not all) states, figures the NY tax as a percentage of the tax you would pay were you a full-year resident. That way, they benefit from the higher marginal rates.