It depends, but you may have a case. For background, please click on this link for information on the NJ Credit: NJ Division of Taxation - Income Tax - Credit for Taxes Paid to Other ... On the site you'll see the following excerpt:
New Jersey requires you to pay tax on all of your income, regardless of where it is earned. The credit reduces your New Jersey Income Tax liability so that you don't pay taxes twice on the same income. This is not a refund of the taxes you paid to another state or city. Your credit cannot be more than the amount you would have paid if you earned the income in New Jersey. (Italics added and explained later).
New Jersey may be fully disallowing the credit; however, if you were not fully refunded on Philly tax, then you still are entitled to a NJ credit on the portion of Philly tax still remaining. What you will want to show NJ is the following:
- The refund was for two separate years, so only part of the refund was from 2014. You first will want to show New Jersey that your refund was not entirely from 2014.
- The refund was not a complete refund. Therefore, you still have Philly tax that you did pay, and so the credit needs to be recalculated based on that revised Philly tax amount
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It is possible that you owe NJ nothing. As shown by the italicized statement in the excerpt, your NJ credit could be lower than how much Philly tax you paid. If the revised calculation of Philly tax is still greater than what NJ taxed the same income, you still owe NJ zero on that income.
Nevertheless, the key is documentation. You need to send NJ a copy of the documentation that shows how much refund was for each year, and how the credit recalculates. Only then can you relieve yourself of a portion if not all of the amount New Jersey is claiming you now owe them.
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