But the differences between the way New Jersey and Pennsylvania collect income tax are more dramatic – and are at the heart of the recent breakthrough that has been the most difficult to end the long tax treaty of these two countries. The bistate tax treaty, which dates back to the 1970s, is appreciated by many residents and businesses in southern Jsey as a comfort and a means of promoting economic development. NOTE: The reciprocity agreement between Pennsylvania and New Jersey is not extended to Philadelphia. As a result, income collected in Philadelphia and taxed in New Jersey in Philadelphia is eligible for a credit for taxes paid on New Jersey`s performance. The lack of a tax deal between New Jersey and New York is also seen as a net loser for New Jersey`s budget, especially with many New Jerseyers who used to work in New York, who were now working because of the pandemic. In addition, many people in the garden state also pay higher taxes because of differences in income tax structures in the two countries. On November 22, 2016, Governor Christie changed course and said he would not pull the agreement on Pennsylvania`s reciprocal income tax in New Jersey. According to a statement, health care reforms would generate $200 million in savings next year, allowing Governor Christie and his government to “save” the agreement. After much violence, the agreement is maintained. We understand that some people question the real motivations for the decision not to take anything away from the tax treaty and ultimately maintain it, but our role is not to participate in political debates. Our task is to present information so that you make the best decisions possible. The new efforts also come, as lawmakers urge Murphy`s administrators to take a closer look at how New Jerseyers who work in New York and pay income taxes in Albany are influenced by the lack of a similar income tax agreement between the two states.
While income tax structures were similar when the mutual agreement was first reached, income tax in New Jersey has over the years become a progressive system where residents pay at a higher tax rate, while they increase through a number of income categories. Rates range from 1.4% at the bottom to 10.75% for a result of more than $1 million. But this time comes the initiative to give more votes to legislators in the future of mutual agreement, in the midst of the pandemic that has weighed on the state`s economy, including in south Jersey, where the effects of the bistt agreement are most felt. New Jersey and Pennsylvania have a mutual agreement. Compensation for New Jersey residents who work in Pennsylvania is not subject to income tax in Pennsylvania. Compensation means wages, tips, fees, commissions, bonuses and other allowances paid for benefits as an employee. The Pennsylvania Revenue Department announced that New Jersey is ending its reciprocity agreement with Pennsylvania effective January 1, 2017, which requires individuals to file two income tax returns and withhold employers for both states starting in 2017. Residents of Pennsylvania and New Jersey receive a credit for income tax paid on wages that are earned in the other state. Unfortunately, there is no doubt that some employers and subcontractors have wasted time and resources preparing for policy change. There is no doubt that while the change generates additional revenue for New Jersey, it would have had a negative impact on many businesses and commuters between states.
But the agreement will be maintained for the foreseeable future. Pennsylvania requires proof that taxes were paid to the other state. You must print the return of the AP with a copy of the return of the state of New Jersey, the W-2 (s) with the AP income and a statement in which you reside in a reciprocal state, and send it by email.