Your credit of taxes paid to NY on your NJ return should not be compared to your NY withholding on your W-2. It should be compared to your total tax calculated on your IT-203. Since you mentioned that you don't owe with NY, I am assuming you are getting a refund. If you got a partial refund on the $10,000 withheld from your W-2, then your tax liability was less than your withholding. You wouldn't get that amount of a credit in NJ if you got a partial refund from NY. It is based upon the amount of tax you are actually liable for in nonresident state.
Using your example, if you got a $2,000 refund in NY, your total NY tax liability would actually be $8,000. This should then be compared to the $7,000 credit on your NJ return. However, you should also note that it will never perfectly "cancel each other out" as there are differing tax rates across states. Per the State of New Jersey (page 34), The amount of each item of income taxed by the other jurisdiction cannot be more than the amount of ....
@1sttimer
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