HR or Tax Experts-- State Taxes question

[Cindy B]

I'm new to this all stuff.. so please bear with me.


I have been offered a position and I am going over the state tax forms. I am a NJ resident who will be working in Philadelphia. According to my employer , I have the option to either take NJ or PA taxes out of my check.

I know if I take PA taxes out, the PA taxes are "credited" to my NJ state tax returns. PA and NJ have a reciprocal agreement.

If it complicates matters any, I have a set Philadelphia wage tax as well.

I think PA has a flat tax percentage rate (Used to be a PA resident years ago) and NJ does not use this system.

What is more advantageous? If it complicates matters further, DH works in DE so we also have DE state taxes to do. DH has DE taxes taken out, but we had to owe the state of NJ state taxes this year. DH had a large DE refund but this money went to our state of NJ taxes.

 

[Cheshire Figment]

I would suggest that you contact the NJ Income Tax Division. The key question is does NJ have reciprocity with PA?

For example, in the DC area, DC, MD, and VA all have reciprocity. It does not matter where you work or where you live, but the employer will withhold taxes from the jurisdiction where you live and you only file a return where you live, but all income is reported to them.

Where there is no reciprocity it can get much more complicated. I used to have a client who lived in Maryland but worked in Delaware. His employer would withhold Delaware taxes. He had to file a Delaware Non-Resident return and pay taxes to DE. He also had to file a MD return and report all income from all sources. He was able to get a credit for only part of the DE taxes, as the DE tax rate was higher than the MD rate.

I am not very familiar with the PA taxes, but I do know that the local (municipal) taxes are based on a percentage of the salary/wages and you do not file a return for them.

Another option would be go to the off-season office of something like Jackson-Hewitt or H&R Block and discuss the situation with them.

Mike (CPA Retired)

 

[Cindy B]

NJ does have reciprocity with PA.

NJ does NOT have reciprocity with DE which caused problems with us this year.

So we are NJ residents:

One wage earner - DE - no recip. agreement with NJ
One wager earner - PA wage-- recip. agreement with NJ

We had to do a similar thing with your previous client. DH had to file a non resident DE and report all sources of income. We also filed a NJ return. NJ's rates were higher than DE.. so we used the DE "refund" to offset the taxes for NJ.

 

[clutter]

If you live in NJ, and you have to file in NJ, why would you not have NJ taxes withheld. If PA and NJ have reciprocity, it sounds like you'd have to file two returns. If your employer withholds NJ taxes, you should only have to file one.

 

[Cindy B]

If you live in NJ, and you have to file in NJ, why would you not have NJ taxes withheld. If PA and NJ have reciprocity, it sounds like you'd have to file two returns. If your employer withholds NJ taxes, you should only have to file one.

That is my thinking as well. I'd have to pay NJ state tax anyway.

I guess the employer gives the option because there are so many employees from the tristate area. (PA, DE, NJ )

If I had to take PA taxes out, we as joint filers would have to fill out three different state forms: NJ Resident, PA Non Resident, DE Non Resident.
PA and NJ are reciprocal but it is more paperwork involved than just filing one NJ--which we have to do anyway.