Nj Pa Reciprocity Agreement Income Tax

New Jersey and Pennsylvania have a unique tax agreement in place known as the “Reciprocal Personal Income Tax Agreement.” This agreement allows individuals who live in one state and work in the other to only pay income tax in their state of residence.

The agreement was established in 1977 between the two neighboring states to simplify the tax payment process for individuals who cross state lines for work. The agreement covers all types of income, including wages, salaries, tips, commissions, bonuses, and other forms of compensation.

Under this agreement, residents of Pennsylvania who work in New Jersey do not have to pay New Jersey state income tax. Similarly, residents of New Jersey who work in Pennsylvania do not have to pay Pennsylvania state income tax. This means that individuals only need to file tax returns in their state of residence and not in the state where they work.

To qualify for this agreement, individuals must be a resident of either New Jersey or Pennsylvania for the entire tax year and must work in the other state. This agreement does not cover self-employment income, rental income, or income earned from a business located in the other state.

It`s important to note that while individuals are not required to pay income tax in the state where they work, they may still be subject to other taxes. For example, if an individual works in New Jersey but lives in Pennsylvania, they will still be required to pay the New Jersey state sales tax on purchases made in New Jersey.

Overall, the New Jersey-Pennsylvania Reciprocal Personal Income Tax Agreement is a great benefit for individuals who work across state lines. It simplifies the tax payment process and saves individuals time and money on tax preparation. If you qualify for this agreement, make sure to take advantage of it to minimize your tax obligations.