NJ-COJ - Tax Credit Paid to other Jurisdiction

[Deetee]

I am not sure if I have been filing the NJ-COJ form correctly for the past several years. My wife and I are both NJ Residents. I work in NY and she works in NJ. I make 100K, she makes 50K. Ignoring all deductibles and so on, my understanding is that NY will tax based on 150K and so will NJ. When I fill out my NJ-COJ form, is Line 1 suppose to be 100K and Line 2 to 150k? If so, it would seem like I am only getting about 66% back from the tax amount that I paid to NY. 

Any help is greatly appreciated. Thanks!

[rjs]

Are you using TurboTax? This forum is run by Intuit, the company that makes TurboTax, to help its customers use TurboTax to prepare their tax returns. TurboTax will automatically fill out Schedule NJ-COJ correctly for you. Prepare your New York nonresident tax return first, then your New Jersey resident tax return.

The following explanation of the Credit for Income Taxes Paid to Other Jurisdictions is from New Jersey Division of Taxation Publication GIT-3W.

"This credit minimizes double taxation of income that is already taxed by other jurisdictions. Though the credit reduces your New Jersey Income Tax, you are not necessarily entitled to a dollar-for-dollar credit for the total amount of taxes paid to the other jurisdiction. The credit represents the amount of New Jersey Income Tax that you would have paid had the income been earned in New Jersey, or the amount of tax actually paid to the other jurisdiction, whichever is less."

[fanfare]

your joint NY taxable income is $100,000. Your wife doesn't have any NY income.

[Deetee]

Yes I am using TurboTax. I used it last year and is in the process of filling for this year, but have not submitted yet. I am getting the same result as last year - only able to get retrieve roughly 60percent of the total tax amount paid to NY. Just wanted to see if I am doing something wrong or it is normal to get such a low percentage in ny tax credit for my situation.

[fanfare]

Did you follow the instructions in the

NJ Resident Return NJ-1040 Booklet ?

It's not that complicated.

[rjs · Accepted solution]

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@Deetee wrote:

When I fill out my NJ-COJ form, is Line 1 suppose to be 100K and Line 2 to 150k? If so, it would seem like I am only getting about 66% back from the tax amount that I paid to NY. 

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Yes, that's correct. The Credit for Income Taxes Paid to Other Jurisdictions on your New Jersey tax return is about 66% of your New York tax. As it says in the paragraph that I quoted above from New Jersey Publication GIT-3W, "The credit represents the amount of New Jersey Income Tax that you would have paid had the income been earned in New Jersey, or the amount of tax actually paid to the other jurisdiction, whichever is less." New York tax rates are higher than New Jersey rates, so the credit is only the amount of New Jersey tax on your New York income. The effect is that you pay the full New York tax. The credit eliminates any New Jersey tax on your New York income, but it does not reduce or cancel out your New York tax. You still pay the full New York tax.

@Deetee wrote:

Just wanted to see if I am doing something wrong or it is normal to get such a low percentage in ny tax credit for my situation.

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Yes, it's normal, because of the difference in tax rates between New York and New Jersey. You are not doing anything wrong.

[DJay2]

For me I work in PA and resident of NJ. We are in same situation, and using turbo tax for past many many years. It never asked/alerted us about taxes paid to other juridiction even though its entered in local tax section in w2 under NJ (although its PA locality) so its confusing (we don't get PA w2). Filling using turbotax didn't ask us to enter this tax under other tax section even though it was entered in the w2. 

Not sure why it was not alerting us and now we don't know if we can go back few years. Is there way to amend this, we paid more tax if didnt claim the local tax (of PA) back whenever we filed NJ state taxes.  Or did we not have to, still confused about this. 

[AmyC]

If you are residents of NJ, you don't file PA as long as you filed REV-419 with your employer.  Since you don't have PA wages, there is nothing to be done. Your employer handled it. 

The Reciprocal Personal Income Tax Agreement between Pennsylvania and New Jersey means compensation paid to New Jersey residents employed in Pennsylvania is not subject to Pennsylvania income tax. Therefore, you cannot claim a credit on Schedule NJ-COJ for taxes paid to Pennsylvania on those earnings.

See Which states have reciprocal agreements? - TurboTax Support

@DJay2 @Deetee 

[avd706]

I agree.

I am in a similar situation.

If I'm not married, I get all my money I pay NY back on the NJ return, at least up to what I owe.

However, the more money my wife makes in NJ, the less credit I for what I pay NY, plus my tax rate in NY goes up because I have to factor in all household income to determine the tax rate.

The formula penalizes us the more money she makes, and does not take into account any tax difference between NY and NJ. If the goal is to make sure there is a 1:1 ratio of  taxes due to Jersey vs. New York, then the formula should be a ratio of what taxes are owed, not a ratio on adjusted household income

Makes no sense. Maybe if we try with individual returns we would make out better.

[TomD8]

@avd706 --

"However, the more money my wife makes in NJ, the less credit I for what I pay NY"

Not so.  NJ will give you full credit for the taxes paid to NY, up to the amount due to NJ.  Your NJ tax will increase as your wife's NJ income increases, but the credit for NY will not diminish.

Filing MFS vs MFJ may or may not reduce your overall tax bite.  That would depend on the actual numbers.