Local taxes, like the Philadelphia wage tax, are not covered by the reciprocal agreement between NJ and PA, so you don't get a direct refund of these taxes from PA. However, you can use these taxes as the basis for a Credit Paid to Other State. So, instead of getting a refund from PA for the taxes paid, you can use the taxes paid to reduce your NJ tax liability (and thus get a larger refund from NJ).
You will need to enter this information in the NJ program, however. Look for the screen below (see the first screenshot) - you will want to select "Work on Credit" when you get to this screen (if you already went through this screen, then you might get a screen that says "Summary of Other Taxes Paid" instead of the screen below).
The next screen you will select PA and then the next screen is where you will select what type of local tax you paid. Pay close attention to this PA specific screen (you will likely need to check one of the small checkboxes and then select No. After you hit No, you will be prompted to fill out the information for what local tax you paid and how much. The program will then calculate a credit for you on your NJ return based on the taxes paid to the locality in PA.
Note: You might not get a full credit for the whole amount of taxes paid - this is normal, the calculation accounts for the double taxation effect and doesn’t necessarily give you an entire credit for the amount paid.
