New Jersey Income Tax Reciprocity
The deal is beneficial for high-income Pennsylvanians who work in New Jersey and middle-class New Jersey residents who work in Pennsylvania. It affects nearly 250,000 people; About 125,000 Pennsylvania residents work in New Jersey, and almost the same number of New Jersey residents work in Pennsylvania, according to U.S. Census data. Pennsylvania`s flat tax rate is the more advantageous you earn compared to New Jersey`s progressive rates, which are based on income. Working for a business in New Jersey but living in Pennsylvania can save high-income households a significant amount. A Pennsylvania resident who earns $100,000 a year while working in New Jersey saves nearly $1,200 a year by avoiding income tax in New Jersey. Pennsylvania requires proof that taxes have been paid to the other state. You must print and send the PA return with a copy of the New Jersey state return, the W-2(s) with pa income, and a statement stating that you are a resident of a mutual state. To be exempt from future PA deductions, file Form REV-419 with your employer. New Jersey has experienced reciprocity with Pennsylvania in the past, but Gov. Chris Christie terminated the agreement effective Jan. 1, 2017.
You will need to have filed a non-resident tax return in New Jersey starting in 2017 and have paid taxes there if you work in the state. Thankfully, Christie backtracked as a cry rose from residents and politicians. You can file Exemption Form 42A809 with your employer if you work here but are located in Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin. However, Virginia residents must travel daily to qualify, and Ohio residents cannot be shareholders of 20% or more in an S-Chapter company. Arizona has reciprocity with a neighboring state – California – as well as Indiana, Oregon and Virginia. Submit the WEC form, the source deduction exemption certificate, with your employer for a withholding tax exemption. The map below shows 17 orange states (including the District of Columbia) where non-resident workers living in common states do not have to pay taxes. Hover over each orange state to see their reciprocity agreements with other states and to find out which form non-resident workers must submit to their employers to obtain an exemption from withholding tax in that state. However, New Jersey`s rates are lower than Pennsylvania`s for middle- and low-income workers. A New Jersey resident who earns $50,000 a year pays $265 less in income tax than a Pennsylvania resident who earns the same amount. However, people who travel to Delaware would pay at least $1,100 more than if they worked in New Jersey.
Reciprocal tax treaties allow residents of one state to work in other states without deducting the taxes of that state from their wages. You wouldn`t have to file non-resident state tax returns there, as long as they follow all the rules. You can simply provide your employer with a required document if you work in a state that has reciprocity with your home state. NOTE: The mutual agreement between Pennsylvania and New Jersey will not be extended to Philadelphia. Therefore, income earned in Philadelphia and taxed in both New Jerseys in Philadelphia will be eligible for a credit for taxes paid on the New Jersey return. Indiana has reciprocity with Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin. Submit the WH-47 exemption form to your Indiana employer. Henderson submitted a question about interstate travel via Curious Philly, our forum where readers can submit questions about their community.
He wondered why Pennsylvania and New Jersey have an agreement under which people who live in one state and work in the other only pay income taxes in their home state, while Delaware does not. "I`ve learned that it`s always best to work in the same state where you live," Henderson said. "I do my own taxes, and dealing with two states that tax income differently only complicates life." The reciprocity agreement applies only to compensation. If you are self-employed or receive other income (for example. B, gains from the sale of real estate) taxable in both states, you must file a non-resident tax return in New Jersey and report the income received. If you are a Pennsylvania resident and New Jersey income tax has been deducted from your salary, you must file a non-resident new Jersey tax return to receive a refund. To stop withholding New Jersey income tax, complete a certificate of non-residence of the employee in New Jersey (Form NJ-165) and give it to your employer. You must attach a signed statement to your non-residents of New Jersey stating that you are a resident of the Commonwealth of Pennsylvania. Similarly, if you are a New Jersey resident and your employer has withheld Pennsylvania income tax on wages, you must file a Pennsylvania tax return to receive a refund. To stop withholding income tax in Pennsylvania, complete Form REV-419EX, Employee Non-Withholding Application Certificate, and give it to your employer. For more information, visit the Pennsylvania Department of Revenue website or call 1-717-787-8201. Pennsylvania and New Jersey have entered into a reciprocal agreement since 1977, when the two states agreed not to levy income tax on workers moving from the other state.
"The biggest beneficiaries of the pact are high-income Pennsylvanians who travel to New Jersey to work but pay Pennsylvania`s flat-rate income tax of 3.07 percent," he wrote in a veto message. "If they were subject to New Jersey income tax, they could pay a maximum tax rate of up to 10.75%." Henderson, the Chester County resident who works in Delaware, for example, also has to pay a 1% income tax to Avondale County where he lives. Pennsylvania has a flat income tax rate of 3.07%. However, New Jersey and Delaware have progressive rates; People who earn more pay more. Iowa has reciprocity with only one state - Illinois. Your employer does not have to deduct Iowa state income taxes from your wages if you work in Iowa and are an Illinois resident. Submit the exemption form 44-016 to your employer. Compensation paid to residents of New Jersey in Pennsylvania is not subject to New Jersey income tax under the terms of the Reciprocal Agreement on Personal Income Tax between the states. Similarly, New Jersey residents are also not subject to Pennsylvania income tax.
Compensation means salaries, wages, tips, honoraria, commissions, bonuses and other payments received for services provided as employees. Pennsylvania also has tax reciprocity with five states: Maryland, Ohio, Virginia, West Virginia, and Indiana. New Jersey, on the other hand, has reciprocity only with Pennsylvania. Delaware has no reciprocity with any other state. For example, New York cannot tax you if you live in Connecticut but work in New York, and you pay taxes on that income earned in Connecticut. Connecticut is designed to offer you a tax credit for all taxes you paid to the other state, or you can file a New York State tax return to claim a refund of taxes withheld there. Henderson is not alone. More than 324,000 people living in Delaware, Pennsylvania or New Jersey work in one of the other two states. Here`s a look at when and why it costs workers extra taxpayer money to work across state borders — and when having an interstate commute could save someone money. Those who travel to Delaware pay the most, while high-income Pennsylvanians who work in New Jersey get a deal by avoiding garden state income tax. Anyone who works or lives in Philadelphia also pays the city`s payroll tax — including New Jersey residents who are exempt from Pennsylvania state taxes under the mutual agreement. New Jersey residents can claim a Philadelphia payroll tax credit on their New Jersey income taxes.
Delaware residents can claim Philadelphia payroll tax as an individual deduction, but not as a credit, according to the state Revenue Division. Virginia has reciprocity with the District of Columbia, Kentucky, Maryland, Pennsylvania, and West Virginia. Submit the VA-4 exemption form to your Virginia employer if you live and work in one of these states. Of the three states, Delaware has the highest income tax rates and would therefore likely lose money if it wasn`t collected by all commuters. Nearly 39,000 people commute from New Jersey and Pennsylvania to Delaware, while more than 35,000 live in Delaware and work in New Jersey or Pennsylvania, according to U.S. Census data. You cannot claim a credit for taxes paid to Pennsylvania upon your return to New Jersey. If you withheld Pennsylvania income tax from your wages, you must file a Pennsylvania non-resident return to receive a refund. New Jersey and Pennsylvania have a mutual agreement.
Compensation paid to Pennsylvania residents of New Jersey is not subject to Pennsylvania income tax. Remuneration means salaries, wages, tips, honoraria, commissions, bonuses and other remuneration received for services rendered as employees. People who live in Pennsylvania and work in Delaware, like Henderson, pay Delaware income taxes and can then apply for a loan so they don`t have to pay Pennsylvania taxes on the same income. In the opposite situation, Delaware residents traveling to Pennsylvania still owe money to their home state after paying Pennsylvania — but they should only have the difference between the Delaware tax and Pennsylvania`s lower number. .