State income taxes can be a headache for those who live in New Jersey but work in New York. The following are some common questions and important considerations to keep in mind while navigating the two state tax systems.
Will I have to pay two sets of income taxes?
No. New York imposes income taxes on nonresidents who work in New York. Unlike Pennsylvania, New York does not have a reciprocal personal income tax agreement with New Jersey. This means that people who live in New Jersey and work in New York need to report their income in both states.
However, commuters are not subject to double taxation. New Jersey offers a tax credit to those who pay income taxes to other states, including New York and its political subdivisions. Taxpayers can claim this credit by filing Schedule NJ-COJ with their income tax forms.
What New York taxes may I be responsible for?
Cross-state commuters can be responsible for several statewide and local taxes.
Those who work in the state of New York are subject to New York state income tax. New York state also imposes the Metropolitan Commuter Transportation Tax on self-employed people and some employers who do business in certain counties in southern New York, whether they are residents or not.
Commuters may also be responsible for certain local taxes. Some cities have nonresident income taxes. For example, nonresident employees of New York City and its agencies are subject to the New York City Nonresident Employee Tax. Nonresident private employees in NYC are not subject to a general NYC income tax. On the other hand, Yonkers imposes a general local income tax on all nonresidents working there.
This list is not exhaustive. Depending on the circumstances, nonresidents may also be responsible for other taxes not mentioned here.
Do I have to pay the New York income tax for days I work remote?
It depends. Despite the growing prevalence of hybrid schedules, it remains difficult to predict how remote work will be taxed. New York Courts and the New York Department of Taxation and Finance historically decided the question under the strict “convenience of the employer” test. Under this test, a nonresident who works some days in New York and some days outside of it must report all remote work unless the nature of the work makes it impossible to perform in New York.
But in 2006 the New York Department of Taxation and Finance complicated the test. Now, taxpayers do not need to report income to New York from days worked from home if the employee’s home office is a “bona fide employer office.” The New York Tax Department decides whether an office is a bona fide employer office by applying a multifactor test. The result is that each taxpayer’s particular circumstances determine whether New York will tax remote work.
In summary, if you live in New Jersey and work in New York, many factors can impact your tax liabilities. Each taxpayer’s situation is different. This makes professional advice essential to accurately determining and complying with your tax obligations.