After 16 years the company finally got it right. Income that your husband earns for working in North Carolina is NC source income, and he has to pay NC tax on it. Since he lives in New Jersey, all of his income is subject to NJ tax, no matter where the income is from. So yes, you have to file a NC nonresident tax return as well as your NJ resident tax return. You will get a credit on your NJ return for part or all of the tax that you pay to NC. New Jersey gives it the somewhat unwieldy name of Credit for Income Taxes Paid to Other Jurisdictions. Prepare your NC nonresident tax return first, then your NJ resident tax return, to make sure that the credit is calculated properly.
If his NC income is below the NC filing threshold he is not required to file the NC tax return. But he will want to file anyway, even though it's not required, to get a refund of the NC tax that was withheld.
