Both New Jersey and Pennsylvania are among the many states that require employers to withhold state income tax from employees who work in those states. On occasion, an employee might live in one state and work in another. If you are a resident of New Jersey who works in Pennsylvania, your employer must apply specific withholding practices.

Do you have to file PA-40 if you live in NJ?

The following is from the instructions for Pennsylvania Form PA-40. “A resident of one of these reciprocal states whose employer withheld PA income tax must file Form PA-40 reflecting no compensation on line 1a and the PA tax withheld on line 13.

How to stop income tax withholding in New Jersey?

To stop the withholding of New Jersey Income Tax, complete an Employee’s Certificate of Nonresidence in New Jersey ( Form NJ-165) and give it to your employer. You must enclose a signed statement with your New Jersey nonresident returns indicating you are a resident of the Commonwealth of Pennsylvania.

Is there a reciprocal tax agreement between NJ and PA?

NJ Income Tax – PA/NJ Reciprocal Income Tax Agreement. The Reciprocal Agreement covers compensation only. If you are self-employed or receive other income (for example, gain from sale of property) that is taxable in both states, you must file a New Jersey nonresident return and report the income received.

Do you live in NJ but work in PA?

If you lived in NJ the entire tax year, and worked in PA, your W-2 wages are not subject to PA taxes. For tax purposes, your PA wages are considered NJ income, and are fully taxable by NJ. If this is your situation, you would answer No in the Personal Info section of TT to the question about having Other State Income.

Do you have to pay state taxes if you work in both states?

The easy rule is that you must pay non-resident income taxes for the state in which you work and resident income taxes for the state in which you live, while filing income tax returns for both states.

Do you pay taxes if you are a nonresident in Pennsylvania?

Pennsylvania has reciprocity agreements with several neighboring states. This means nonresident states will not tax a nonresident employee’s compensation, and that the compensation will be subject to the taxation of the worker’s resident state.