New Jersey is not taxing all of your income, but it does use all of the income to determine New Jersey tax. What New Jersey does is pretends to tax all of your income by New Jersey law (which does not allow some types of income to be deducted). Then, once that amount has been calcuated, the result is prorated to the amount of income actually earned in New Jersey. New Jersey will factor in all of your income to determine tax, but only the actual income earned or derived from New Jersey is truly taxed.
However, if you see both Massachusetts and NJ tax lines on the W2, NJ programming requirements will double-up the income and tax the income twice (which is not correct). If this is what you see, then please note the following: On the NJ return, you will see a screen titled About Your W-2 State Wage Information. Because of state programming requirements, TurboTax includes both income lines as part of the NJ income. The next screen is titled Let's Confirm Your Taxable State Wages from (Employer). Click on the MA box so that those reported wages are not included on New Jersey's return.
[Edited 04/05/19 20:13 PST]
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