“I live in CT and work in NY. For 2011 my state taxes have been paid to CT not NY. Does it matter if I am paying taxes to the state where I live rather than work?”----> I assume that you are a full year resident of NY, then as there is no State Tax Reciprocal Agreement between NY and CT, you , as a nonresident of CT need to pay tax to CT on your income that you earned in CT and need to file your NYS return as a full year resident of NYS to claim your tax credit on the CT tax that you paid to CT on your NYS return.
“Because of this in my 2011 returns it looks like I will file an NY tax return for all the unpaid tax (about $8000) and claim that against the CT tax return. “-Correct; as described above.
“For previous years this was not an issue because my employer paid NY tax. “----->As aid, your ER in CT, as there is No State Tax Reciprocal Agreement between NY and CT, doesn’t have to withhold taxes from your paychecks for your state. Some states relieve you of the burden and expense of having to file two state tax returns when you live in one state and work in another by way of a "reciprocity agreement." If the states you live and work in have such an agreement, then you will only have to file a state tax return in the state where you live, NYS. For example, Minnesota has reciprocity agreements with Wisconsin, in this case, a full year resident of WI working in MN as a non resident of MN needs to fiel only WI return, NOT MN return under the reciprocity agreement between MN and WI.
“I don't know why they switched & I don't know if it matters other than making things slightly more complicated.”------>It is up to ypur ER in CT.