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Live in PA & work in NJ? Your 2017 income tax could be impacted.

Diane Cloeren, Tax Manager - Administrator of Individual Services

September 6, 2016

On Friday, September 2, New Jersey Governor Chris Christie ended the 38-year old reciprocal income tax agreement between New Jersey and Pennsylvania effective January 1, 2017. With reciprocity, the taxpayer can file and pay tax only in the state where they live. This has allowed New Jersey employers to withhold and remit Pennsylvania income tax for their Pennsylvania resident employees and vice versa. Without reciprocity, taxpayers who work in another state, file two returns, pay tax in two states, and pay the equivalent of the higher of the tax of the state of employment or the state of residence.

High-income Pennsylvania residents who work in New Jersey, will now be subject to New Jersey's higher progressive rates. Low-income New Jerseyans who work in Pennsylvania, especially those working in Philadelphia, may also face a tax increase - not only paying a higher rate, but also losing a tax credit for Philadelphia's wage tax.

Pennsylvania residents pay a flat 3.07 percent income tax rate with no personal exemptions. New Jersey residents pay higher rates the more they make, with progressive rates increasing from 1.4 percent to 8.97 percent.

If the New Jersey legislature comes back this week and cuts health costs, Christie could consider "revising" his termination of the reciprocal tax pact.

We will continue to monitor any change and will advise all affected clients appropriately beginning in January 2017.

 Sources - Reuters Politics, Hillary Russ

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