New Jersey ends reciprocal income tax agreement with Pennsylvania

On Sept. 2, 2016, New Jersey Governor Chris Christie announced the end to a 38-year-old agreement between New Jersey and Pennsylvania for their residents that work in the other’s state.

For the past several decades, New Jersey residents who work in Pennsylvania have only had to file an income tax return in New Jersey and vice versa for Pennsylvanians working in New Jersey. The end of this agreement means they will have to file two state income tax returns – a nonresident for the state in which they work and a resident for where they live – and claim a credit on their resident return for the taxes paid to their work state.

Lower-income New Jersey residents and higher-paid Pennsylvania residents are the two groups that will most likely feel the financial pinch the hardest as Pennsylvania has a 3.07 percent flat tax while New Jersey’s is graduated, with a top rate of 8.97 percent.

Gov. Christie said he was ending the agreement to fill in a gap in the state budget that was left $250 million short in the latest budget passed by the New Jersey legislature, but he will reconsider his decision if the legislature finds another way to make up for the state’s shortfall. He has asked the legislature to make cuts to public employee healthcare costs.

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