If you work in New York and live in NJ, how do NJ state taxes work?

I know if you work in NY and live in NJ, you still need to file taxes. However, can you actually be double-taxed? For example, can one actually OWE taxes in a state they do NOT work in? I’m only asking because my gf’s accountant is telling her she owes a lot of income tax for NJ state, even though she doesn’t even WORK in NJ. I’m questioning this. Any feedback is appreciated.

5 Replies to “If you work in New York and live in NJ, how do NJ state taxes work?”

  1. I work in SC and live in NC. SC taxes get deducted from my checks because that’s where the company is located. Normally no NC taxes get deducted from my checks, but I do end up paying NC state tax when I file an NC return. I don’t know exactly how it works, but I don’t think you end up paying double the taxes. In my case SC gave me a refund which exceeded the amount I owed NC. I actually came out on the positive end.

    So, yes, you can definitely owe state tax to the state that you reside in, even if you don’t work in that state.

  2. You do file 2 state returns but are not double taxed. Your home state is entitled to levy tax on all of your income world-wide, regardless of where you earned it. If you work in a different state, that state is entitled to tax the income you earn in that state only. Your home state will give you a credit for the taxes paid to the state where you work.

    File a non-resident NY return first, showing only the income earned in NY. Pay any tax due or collect your refund, as appropriate.

    Then file a resident NJ return, showing all income world-wide. You’ll get a credit on your NJ return for the NY taxes paid, at least up to the amount of tax that NJ would have collected on the NY income.

    The net effect is that you pay state income tax at the higher rate of the 2 states for the income earned out of state. The NJ credit for the NY taxes paid will reduce the burden in NJ but she will have to make up any shortfall. If it’s significant she should consider making quarterly estimated payments to NJ to avoid a debt next year.

  3. To the best of my knowledge, you can’t owe state income taxes if you have no income in that state. This is regardless of where you live. I would suggest asking a finance lawyer for official advice, and have your girlfriend switch accountants immediately, if not sooner.

  4. There are State + Federal taxes involved. If your primary residence is in either state, you will pay according to THAT state’s laws. But if you earn your income in another state, you will owe a percentage of your income to THAT state. NY’s taxes are higher than NJ’s so it’s cheaper to live AND work in NJ. Next best is to live in NJ + work in NY. Living AND working in NY costs the most. Get a new job in NJ for the least taxes.

  5. It is possible to owe NJ in the circumstances you describe. I practice in NJ, and have a number of NYC commuters as clients. NY and NJ do not have a reciprocal tax agreement, so both states claim the income made by NJ residents in NY.

    After completing your federal return, you would next need to complete your NY IT-203. The next step is to complete your NJ-1040, on which you would report the NY income again.

    You should receive a NJ credit for most, but not all, of the total NY tax on the IT-203. That is because the credit is based on NJ rates applied to the income taxed in NY, and the NJ rates are lower.

    Since NY allows itemized deductions and NJ doesn’t, owing little to NY (and therefore not getting the credit for taxes paid to NY) and alot to NJ is possible. Another thing that can cause that is the days worked out-of-NY on the IT-203.

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