NJ Residents Working in Other States

For thousands of New Jersey residents, earning income across state lines is just a normal part of their daily routine. Whether it’s commuting to New York’s financial centers or Pennsylvania’s corporate headquarters, many Garden State residents cross borders every day and often find that tax rules don’t end at the state line.

If you’ve wondered “Do I owe NJ tax if I work in NY?” or “What if I live in NJ and work in PA?”, you’re not alone. These are common questions, and the answers aren’t always straightforward.

Let’s examine the most common cross-border challenges faced by individuals and small businesses, and see ways to protect yourself from unnecessary expenses.

NJ Taxes Everything You Earn

If you’re a New Jersey resident, you’re required to report and pay state tax on all income, regardless of where it’s earned. This includes wages from New York, business profits from Pennsylvania, and even consulting income earned while working overseas.

For full-year NJ residents, this usually means filing in two places. You file a nonresident return in the state where you worked to cover taxes owed there. Then you also file a resident return in New Jersey to report and pay tax on all your income.

New Jersey offers a tax credit for payments to other states, but it doesn’t always cover the full amount.

The Credit Safety Net And Its Limits

To help you avoid double taxation, New Jersey lets you subtract any tax you’ve already paid to another state from your NJ tax bill. For instance, if you’ve spent $5,000 in New York, you can use that amount to reduce your NJ tax liability.

The catch is that the credit is capped. It can’t exceed the amount of NJ tax that would have applied to that income. If the other state’s tax is higher, you’re stuck with the difference. If it’s lower, you still owe NJ the balance.

This rule often hits New Jersey commuters to New York City, where combined state and city taxes easily surpass NJ’s.

Planning, or making sure to adjust your NJ estimated payments during the year, can keep you from facing an unpleasant surprise at tax time.

The PA/NJ Reciprocity Lifeline

There is one bright spot for border workers: New Jersey’s reciprocal agreement with Pennsylvania. Thanks to this deal, if you live in NJ and work in PA, you only pay NJ income tax on your wages. Likewise, if you live in PA and work in NJ, you only pay PA tax.

It sounds straightforward, but the key is paperwork. New Jersey residents must provide their Pennsylvania employer with a REV-419 exemption form to stop PA withholding. If you skip this step, Pennsylvania will still take tax from your paycheck, and you’ll have to file for a refund.

Reciprocity only applies to state income tax. It doesn’t exempt you from local taxes, such as Philadelphia’s wage tax. New Jersey residents working in Philadelphia still need to pay that local tax, but New Jersey will give you a credit for it.

Why Paychecks Can Mislead You

Payroll withholding can be confusing for workers who cross state borders. In Pennsylvania, employers shouldn’t withhold PA tax from New Jersey residents who have filled out the exemption form. However, New York employers are required to withhold New York tax from New Jersey residents. That’s why you’ll often see NJ withholding on a New Jersey commuter’s W-2 if their job is in New York.

Remote work adds another layer of complexity. New York applies what’s called the “convenience of the employer” rule. Even if you work from home in New Jersey, New York can still tax your wages unless your employer requires a remote setup.

The lesson here is that your paycheck doesn’t tell the full story. Review your withholdings, and if needed, make separate NJ estimated payments to stay balanced.

Residency Rules and Moving Confusion

Your residency status determines which state taxes you. For NJ, you’re a resident if it’s your permanent home or if you live there and spend over 183 days in the state.

If you moved into or out of New Jersey mid-year, you’ll be treated as a part-year resident. That means filing a resident return for the portion of the year you lived here, and if you earned NJ income while living elsewhere, filing a nonresident return as well.

Residency audits are common, especially for those claiming to have moved to no-tax states like Florida. New Jersey will scrutinize your ties to property, time spent here, and even where your family lives.

More States, More Problems for Businesses

For small business owners, consultants, and freelancers, things can get a bit more complicated. If you’re offering services in another state, say, visiting a client in New York or Pennsylvania, that income might be taxable there, so you might need to file nonresident returns.

If all your work is performed from New Jersey for out-of-state clients, those earnings generally remain taxable only in NJ. However, once you or your employees cross borders, other states may require you to register, withhold payroll tax, or collect sales tax.

Even selling into another state can create what’s called “nexus,” a connection strong enough for that state to claim taxing rights. Expanding across borders, even virtually, can quickly pull your business into multi-state compliance. Careful planning and advice can prevent costly missteps.

Need Professional Guidance?

Multi-state income taxes are intentionally complex. With New Jersey having a broad reach, New York being aggressive, and Pennsylvania having its own special reciprocity quirks, it’s easy to make mistakes that add up to real losses.

Todd S. Unger, Esq. has years of experience guiding NJ residents and small business owners through challenges like claiming credits, defending residency audits, and planning for cross-border income. His firm offers clarity and protection.

If you live in NJ but work or do business elsewhere, don’t go it alone. Contact Todd S. Unger, Esq. for a confidential consultation.