Do I Have to Pay New Jersey Income Tax When I Work in Pennsylvania?
- Pennsylvania has a reciprocal tax agreement with Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. The state of New Jersey has a reciprocal tax agreement with only Pennsylvania. A reciprocal agreement means that both states mutually agree that employees should pay income tax to their resident state rather than their work state. Provided you submit the proper form, if you have an employer, he is responsible for making the appropriate withholding from your paychecks and submitting your payments to your home state's taxation department. A reciprocal tax agreement applies to salaries, wages, commissions, bonuses, tips, fees and other compensation for services rendered.
- Since New Jersey and Pennsylvania have a reciprocal tax agreement, if you live in New Jersey and work in Pennsylvania, you should pay New Jersey income tax to the New Jersey Department of Treasury, Division of Taxation. If you lived in Pennsylvania and worked in New Jersey, you would pay Pennsylvania income tax to the Pennsylvania Department of Revenue.
- As a resident of New Jersey and employee in Pennsylvania, you should complete an Employee's Statement of Nonresidence in Pennsylvania and Authorization to Withhold Other State's Income Tax, or REV-420 form, and give it to your employer. The form lets your employer know which state income tax to take out of your paychecks. At the time of publication, Pennsylvania's income tax is based on a flat 3.07 percent of an employee's gross taxable wages. However, New Jersey income tax withholding depends on the employee's state withholding allowance certificate NJ-W4 form, or federal withholding allowance certification or W-4 form, and the New Jersey withholding tax tables.
- If you live in New Jersey and work in Pennsylvania, and your employer is withholding Pennsylvania income tax from your paychecks, you should file an Employee's Nonwithholding Application Certificate, or REV-419 form, with your employer to stop the withholding. To obtain a refund of Pennsylvania taxes withheld, you'll need to file for a refund with the Pennsylvania Department of Revenue. You would be entitled to a refund because the reciprocal agreement forbids the other state from taxing income you earned there. If your employer does not withhold New Jersey income tax, you'll need to file and pay it directly to the New Jersey Division of Taxation.