Wife lives in different state

You cannot file a joint return in MA unless both spouses were residents for the same portion of the year. You would file MFS in MA and not include any of your wife's income.

If your wife's unemployment compensation was related to her previous employment in MA, it is MA source income and all subject to MA tax. Mass. Regs. Code 830 CMR §62.5A.1(3)(c)(9) She would file a nonresident MA return, MFS, if it generates a tax liability for her.

NC law limits the credit for taxes paid to another state to income from a source in the taxing state. It is not clear, from what I can see, whether NC considers unemployment compensation received by a resident on account of services previously performed in another state to be sourced in NC or in the state where the services were performed. I see nothing suggesting that NC (like MA) considers unemployment compensation paid to a nonresident on account of NC employment to be NC source income. I would claim a credit for the tax paid to MA on the unemployment, if any, but would not be particularly surprised if it was disallowed.

Katie in San Diego