Reciprocity, sister states, reciprocal agreements, oh my!

In its current form, this article addresses New Jersey and Pennsylvania companies specifically.  However, this applies for most of the 50 states in its application.  Feel free to request an additional state not mentioned!

NJ Income Tax - PA/NJ Reciprocal Income Tax Agreement

Pennsylvania residents who receive compensation from New Jersey sources are not subject to New Jersey income tax on those earnings. Under the State of New Jersey and the Commonwealth of Pennsylvania Reciprocal Personal Income Tax Agreement, a New Jersey employer is not required to withhold New Jersey income tax from compensation paid to its Pennsylvania resident employees who file form NJ-165, Employee's Certificate of Non-Residence in New Jersey, with their employer. The reverse holds true for Pennsylvania employers with New Jersey resident employees.

This agreement covers compensation only. Compensation means salaries, wages, tips, fees, commissions, bonuses, and other remuneration received for services rendered as an employee. Pennsylvania residents who are self-employed or who receive other types of income from sources within New Jersey must file a New Jersey nonresident return and report the income received. An example of other income is gain from the sale of property located in New Jersey, which is taxable in both states.

If you are a Pennsylvania resident and New Jersey income tax was withheld from your wages, you must file a New Jersey nonresident return to obtain a refund. To stop the withholding of New Jersey income tax, complete an Employee's Certificate of Non-Residence in New Jersey (Form NJ-165) and give it to your employer. When filing for a refund, Pennsylvania residents must enclose a signed statement with their New Jersey nonresident income tax returns declaring that they are residents of the Commonwealth of Pennsylvania. Order an Employee's Certificate of Non-Residence in New Jersey, Form NJ-165; New Jersey Nonresident Return, and instruction booklet, or go to our online tax forms.

Likewise, if you are a New Jersey resident and Pennsylvania income tax was withheld from wages you earned there, you must file a Pennsylvania return to obtain a refund. To stop the withholding of Pennsylvania income tax, New Jersey residents who receive compensation from Pennsylvania must complete Form REV-420, Employee's Statement of Nonresidence in Pennsylvania and Authorization to Withhold Other State’s Income Tax, and give it to their employer. More information is available on the Pennsylvania Department of Revenue Web site or by calling 1-717-787-8201.

This is taken straight from NJ's site: http://www.state.nj.us/treasury/taxation/njit25.shtml

How to maintain in BeyondPay 2.0?

Let's look at an example of a New Jersey company, with an employee that lives in PA.  Begin by going to the Employee Information screen.  Click on the magnifying glass next to New Jersey to see the details of the NJ tax settings for this employee:
EE_Tax_Information.png

 

Next, be sure to have the "Non-Residency Statement Filed" checked off.  It is also a good idea to always keep a "Lock In Letter".  This field doesn't do anything other than to track whether or not you have the proper forms from your employees (the purpose of this article!).  Here is a screenshot of the setting:
LockInLetter.png

 

Please add any additional comments or questions. We're happy to help!

Here are a few attachments for NJ and PA.  (More to come!)

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1 Comments

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    Jonathan

    (For BeyondPay Only) -- Remember to make sure each state that has reciprocal agreements has the "Nexus" box checked. 

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