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New Jersey Reciprocal Agreement with Pennsylvania

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. Increase profits, strengthen existing customer relationships and attract new customers with our trusted payroll solutions that enable in-house, outsourced or hybrid models. On Friday, September 2, 2016, Governor Chris Christie reportedly announced Pennsylvania`s intention to withdraw from the mutual income tax treaty. Under that agreement, which had been in force since 1977, residents of one State who earned a salary in the other State paid only taxes on those wages to their State of residence. According to the Convention, any State may terminate the Treaty at the beginning of a calendar year by giving the other State 120 days` notice. In its current version, the reciprocity agreement will be terminated with effect from 1 January 2017. Reciprocity agreements mean that two states allow their residents to pay taxes only where they live – rather than where they work. For example, this is especially important for high-income earners who live in Pennsylvania and work in New Jersey. Pennsylvania`s highest rate is 3.07 percent, while New Jersey`s highest rate is 8.97 percent. The reciprocity agreement applies only to compensation.

If you are self-employed or have other income (p.B. Profits from the sale of real estate) that is taxable in both states, you must file a non-resident New Jersey income tax return 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. Starting in 2017, you`ll need to withhold pa taxes for your New Jersey resident employees. Because PA and NJ have different tax rates, your employee may ask you to voluntarily withhold and pay NJ taxes so they don`t have to make estimated quarterly payments.

If you are an employer in Pennsylvania or New Jersey with employees moving from another state, we recommend that you ask your employees if they need to make any changes to their income taxes. We can configure the changes to start on January 1, 2017. This does not affect the 2016 taxation year. Since Governor Christie can use this as leverage in negotiating budget matters, it is possible that this contract termination will be revoked before it takes effect. In September 2016, the Governor of New Jersey terminated a tax treaty with Pennsylvania effective January 1, 2017. This 40-year-old agreement allowed workers who move to pay income tax in the state where they live, not in the place where they work. Impact on employers Employers who have withheld wages based on an employee`s place of residence must now withhold based on where wages are earned. In the example above, as of January 1, 2017, the employer must begin withholding Pennsylvania taxes on wages earned in Pennsylvania.

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. Example: New Jersey residents who earn a salary in Pennsylvania previously only paid taxes on their wages earned in Pennsylvania, New Jersey. Starting in 2017, these individuals must inform their employers that Pennsylvania taxes will be withheld and must file a Pennsylvania non-resident return. They will then take a credit on their New Jersey return for taxes paid to Pennsylvania. For people working in Philadelphia, the combined Philadelphia/Pennsylvania tax rate often exceeds their New Jersey tax rate. If you have any questions – or if you would like to contact one of our tax experts – do not hesitate to contact us. .