New Jersey ends reciprocal income tax agreement with Pennsylvania

New Jersey ends reciprocal income tax agreement with Pennsylvania

On Sept. 2, 2016, New Jersey Governor Chris Christie announced the end to a 38-year-old agreement between New Jersey and Pennsylvania for their residents that work in the other’s state.

For the past several decades, New Jersey residents who work in Pennsylvania have only had to file an income tax return in New Jersey and vice versa for Pennsylvanians working in New Jersey. The end of this agreement means they will have to file two state income tax returns – a nonresident for the state in which they work and a resident for where they live – and claim a credit on their resident return for the taxes paid to their work state.

Lower-income New Jersey residents and higher-paid Pennsylvania residents are the two groups that will most likely feel the financial pinch the hardest as Pennsylvania has a 3.07 percent flat tax while New Jersey’s is graduated, with a top rate of 8.97 percent.

Gov. Christie said he was ending the agreement to fill in a gap in the state budget that was left $250 million short in the latest budget passed by the New Jersey legislature, but he will reconsider his decision if the legislature finds another way to make up for the state’s shortfall. He has asked the legislature to make cuts to public employee healthcare costs.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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