What taxes do I have to pay if living in Pennsylvania and working in New Jersey?

Jan 06, 2016
askacpaiconPennsylvania and New Jersey have a reciprocal agreement covering individual income tax on compensation. If you live in Pennsylvania and work for an employer in New Jersey, the employer is not required to withhold income tax for New Jersey, but should instead withhold Pennsylvania tax. This agreement only covers earnings from compensation. If you are self-employed, your income is taxable where it is earned: so, any New Jersey source income would be subject to New Jersey individual income tax.

You should file a Pennsylvania state (and, if required, local) income tax return reporting all your income and claiming the credit for withholding on your W-2. If for some reason your employer has incorrectly withheld New Jersey tax, you should file a New Jersey return to acquire a refund of the tax and pay the full balance due on your Pennsylvania return.

When it comes to taxes, working and living in different states can make things quite complex. To ensure you are filing correctly consult your local CPA. Don’t have a CPA? Visit PICPA’s consumer page for resources including a CPA Locator tool.

Answer By: Susan E. S. Howe, CPA, is principal of HoweAdvisory in Strafford.
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The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.