Do You Pay NYC Tax If You Live in NJ?
NJ residents working for a NY company have unique tax responsibilities. Understand the interplay between state laws to ensure you pay the right amount to the right state.
Living in New Jersey while working for a New York City-based company introduces several layers to your annual tax obligations. This arrangement requires navigating two state tax systems, and you must understand how both New York and New Jersey view your income to file correctly. The process involves filing returns in both states and understanding how they interact.
New York Tax Obligations for NJ Residents
As a New Jersey resident working for a New York employer, you are required to pay New York State income tax on the income you earn from your New York job. This income is referred to as “New York source income.” New York imposes an income tax on nonresidents for compensation earned from a “business, trade, profession or occupation carried on” within the state. It is a common misconception that commuters from New Jersey must also pay the separate New York City personal income tax; however, this local tax applies only to individuals who reside within the five boroughs of NYC.
A factor in determining your New York tax liability is the state’s “convenience of the employer” rule. This regulation stipulates that if you are a nonresident employee assigned to a New York office but choose to work from your home in New Jersey for your own convenience, those remote workdays are treated as if you were physically working in New York. The income earned on those days is considered New York source income unless your employer requires you to work from your out-of-state location as a business necessity.
For example, a hybrid employee who lives in New Jersey and whose company office is in NYC, but works some days from home for convenience, will find all workdays are taxable by New York. The situation is similar for a fully remote employee. If the company has an office in New York and the employee could theoretically work there, but chooses not to, their entire salary is subject to New York State income tax under the convenience rule. An exception applies if the employer can prove a business necessity for the remote work, or if the employer has officially designated the employee’s home as their primary office.
New Jersey Tax Obligations and Credits
As a resident of New Jersey, you are required to pay state income tax on all of your income, regardless of where that income is earned. This means the same wages you pay New York tax on are also fully taxable by New Jersey, creating a scenario of potential double taxation.
To prevent its residents from being taxed twice on the same income, New Jersey provides a “Credit for Taxes Paid to Other Jurisdictions.” This tax credit allows you to reduce your New Jersey tax liability by the amount of income tax you were legally required to pay to another state, like New York, on income that is taxable by both states.
The calculation of this credit has limitations. The credit you can claim on your New Jersey return is limited to the lesser of two amounts: the actual income tax you paid to New York or the amount of tax New Jersey would have charged on that same income. Because New York’s income tax rates are often higher than New Jersey’s, the credit may not completely eliminate your New Jersey tax liability, but it significantly mitigates the impact of being taxed by two states.
Required Tax Forms and Information
For New York, you will file Form IT-203, the “Nonresident and Part-Year Resident Income Tax Return.” On this form, you must report your income from New York sources. If you work remotely, you may also need to complete Form IT-203-B, which is used to allocate your wages and determine how many days were worked inside and outside of New York.
For your home state, you will file Form NJ-1040, the “New Jersey Resident Return.” The most important attachment is Schedule NJ-COJ, the “Credit for Taxes Paid to Other Jurisdictions,” where you will formally calculate and claim your credit.
Annual Filing Process
The order in which you file your state tax returns is a requirement. You must complete and file your New York nonresident return (Form IT-203) before you file your New Jersey resident return (Form NJ-1040). This sequence is necessary because the calculation of your New Jersey tax credit depends directly on the final tax liability determined on your New York return.
Once your New York return is finalized, you can transfer the necessary income and tax paid figures to New Jersey’s Schedule NJ-COJ and complete your NJ-1040. Both states offer electronic filing options, which can simplify the process by automatically carrying the relevant numbers from the nonresident return to the resident return.
After submitting both returns, depending on the amount of taxes withheld from your paychecks versus your final calculated tax liability for each state, you will either receive a refund or be required to make a payment. You may receive a refund from one state and owe taxes to the other.