Do You Pay NYC Tax If You Live in NJ?
Navigating NYC tax as a NJ resident? Clarify your tax liability based on where income is earned and how residency affects your obligations.
Understanding tax obligations becomes complex for individuals residing in one state, like New Jersey, but earning income in another, particularly New York City. State and city income tax rules vary significantly, requiring careful consideration of where income is earned and where an individual resides. Factors determining if a New Jersey resident owes taxes to New York City include the nature and location of their work, physical presence in the city, and income types. Tax liability is not always straightforward, often requiring a detailed review of specific circumstances for compliance.
New York City Non-Resident Income Tax
New York City primarily imposes a personal income tax on its residents. Non-residents, including those living in New Jersey, can also be subject to New York City income tax if their income is derived from New York City sources. For non-residents, income is considered NYC-sourced if earned from work physically performed within the five boroughs: Manhattan, Brooklyn, Queens, The Bronx, and Staten Island.
Wages received for work carried out in an office or other location within New York City are subject to New York City income tax, even if the individual commutes from New Jersey. Business income from operations conducted within New York City can also be considered NYC-sourced for non-residents. If a New Jersey resident works for a New York City-based employer but performs all their work remotely from New Jersey, that income is generally not considered NYC-sourced for a non-resident, provided specific rules, such as the “convenience of the employer” rule, do not apply.
New York City Statutory Residency
A New Jersey resident might become fully subject to New York City income tax without being domiciled there, under “statutory residency.” This occurs if an individual meets two specific conditions for New York State tax purposes. The first condition requires maintaining a “permanent place of abode” in New York for substantially all of the taxable year, meaning more than 10 months. A permanent place of abode is a dwelling suitable for year-round living, whether owned or rented, and includes facilities for sleeping, cooking, and bathing.
The second condition requires spending more than 183 days of the tax year in New York. Any part of a day spent in New York counts as a full day for this 183-day rule. If both the permanent place of abode and the 183-day presence conditions are met, the individual is classified as a statutory resident. All of their income, regardless of where it was earned, then becomes subject to New York State and potentially New York City income tax.
Avoiding Double Taxation with Tax Credits
To prevent individuals from being taxed on the same income by multiple jurisdictions, tax credits are in place. When a New Jersey resident earns income taxed by both New York (State and/or City) and New Jersey, New Jersey provides a credit for taxes paid to the other state.
The credit New Jersey grants is limited. It cannot exceed the tax that would have been due to New Jersey on the specific income also taxed by New York. This means the credit will be the lesser of the tax paid to New York or the New Jersey tax liability attributable to that income. New Jersey taxes its residents on all their income, regardless of where it is earned. Taxpayers usually complete their New York non-resident return first to determine the New York tax liability, which then informs the calculation of the credit on their New Jersey resident return using Schedule NJ-COJ.
Impact of Remote Work and Other Income Types
The rise of remote work has introduced complexities, particularly concerning New York State’s “convenience of the employer” rule. This rule dictates that if a non-resident employee works remotely from outside New York for their own convenience, rather than due to employer necessity, that income may still be considered New York-sourced for tax purposes. This applies even if the work is physically performed in New Jersey.
Employer necessity, which would exempt income from New York sourcing under this rule, involves situations where remote work is required for specific business reasons. Examples include a lack of available office space or a need for the employee to be closer to clients in their remote location. If remote work is simply a choice made by the employee for personal reasons, it is considered for convenience.
Beyond wages, other income types for New Jersey residents with New York City connections also have specific sourcing rules. Rental income from real property located in New York City is considered New York-sourced income for non-residents. Income from pass-through entities, such as partnerships or S-corporations doing business in New York City, is sourced to New York based on the entity’s activities within the state. The sourcing of these income types for non-residents depends on where the underlying economic activity or property is located.