Philadelphia Wage tax is a credit that almost covers your NJ income tax every year. The NJ W4 doesn't allow an exemption for Philadelphia wage tax. What can you do?

[pearldad]

Is there an option that can keep you from over paying NJ income tax each year when you pay Philadelphia wage tax?

[ChristinaS]

You are not exempted from Philadelphia tax, as the PA-NJ reciprocity agreement only applies to state income taxes. However, you can get a tax credit on your NJ return to help reduce your NJ tax liability.

To input the credit for taxes paid to Philadelphia, you need to access the Credit For Taxes Paid section of the New Jersey interview under State Taxes.

• Skip to New Jersey return, and Update or Continue (the screens may vary slightly depending on how far you got in the NJ interview before)
• If you have been through most of the screens before, you will land at a summary page "You've Finished Your New Jersey Return"
• Update next to Taxes and Credits
• continue to Summary of Taxes Paid to Other States screen.
• Add State or Jurisdiction
• Select Pennsylvania
• On the Pennsylvania Credit screen, check the first box about Philadelphia and say NO.
• Enter the local wages (double-taxed income) and taxes paid to Philadelphia from your W2.

This will calculate your credit. Click PDF below for images.

No matter where you are in the interview, you can also go forward or back to find the Summary of Taxes Paid to Other States screen.