Live in NJ and work in PA, haven't been paying NJ taxes

[ldeehan1215]

In 2019 I began working in Philadelphia, PA while I live in NJ. When I got my W2 I noticed that I hadn't been paying NJ taxes on my income earned in PA (i.e. box 17 on my W2 doesn't have an amount). When I looked at the payroll program settings NJ taxes were listed as 'Blocked' and the only taxes I paid in 2019 for that job were federal, PA unemployment and the city tax for nonresidents. After talking to someone in HR they informed me that the payroll program company told them to set it up that way and that it was correct because of the reciprocity between NJ and PA.

Is this correct? After looking it up it seems to me that the reciprocity only means you don't have to pay taxes to both states?

[SweetieJean]

That is essentially correct.  The New Jersey/Pennsylvania Reciprocal Agreement does not apply to income or wage tax imposed and collected by the City of Philadelphia or any other municipality in Pennsylvania. That means a New Jersey resident who works in Philadelphia and pays city wage taxes can claim a credit for the taxes paid to Philadelphia.

However, you will owe NJ tax on any other type of (nonwage) NJ income.

[TomD8]

If you were a full-year resident of NJ, you owe no state income tax to PA on your W-2 income.

The NJ-PA reciprocity agreement means that NJ residents who work in PA are not subject to PA state income tax on their W-2 wages or salaries.  An NJ resident's W-2 income from PA is fully taxable only by their home state of NJ.

You should file PA Form REV-419 EX with your PA employer, if you have not already done so.  This certifies that you are an NJ resident.

Ideally, your PA employer would withhold NJ taxes for you - but PA law does not require them to do so.

If your employer will not withhold NJ taxes for you, you should make quarterly estimated tax payment to NJ.  This web reference has the information about that:  https://www.state.nj.us/treasury/taxation/njit20.shtml

In the personal info section of TT, enter NJ as your state of residence, and answer NO to the question about having other state income.

The reciprocity agreement does not apply to local taxes; it applies only to state income taxes.  And it applies only to W-2 income, not to any other type of income.

[brandy473]

This is very helpful- is it possible to get a refund of the Philadelphia tax?  NJ State was not collected on my daughters W2 yet Philly was.  She owes NJ state, is that money in Philadelphia paid to them? 

[ThomasM125]

You need to file a Pennsylvania tax return that will result in a refund of the tax paid to that state. Pennsylvania will not pay the tax over automatically to New Jersey.