lives in NJ, works in NY, what is the tax rate on salary?

starfisht · ‎March 2, 2025

I'm using TT to calculate my son's tax. He lived all year in NY but worked all year in NY. This seems like the result (rounding off numbers):

NY took 26000 in tax on salary

the NJ tax on that salary is only 22500 so that's the credit that NJ gave for the 26000 paid to NY

My question is what happened to that 2500 paid to NY? Does NY keep that? If so, then in effect, he's paying the NY tax rate on salary and there's no advantage to living in NJ. What am I misunderstanding here?

KeshaH · ‎March 2, 2025

Because he worked in New York, his income is fully taxable to New York. It's also taxable to New Jersey since he lives there. However, to avoid double taxation, New Jersey will give him a credit for taxes paid to New York up to the amount of tax that would be paid in New Jersey. He won't get a refund from NJ for the difference.

In situations like this where you live in one state and work in the other, you will always pay the higher tax rate unless there's a reciprocity agreement between the states. For example, if the situation was flipped and he lived in New York and worked in New Jersey, he'd $22,500 to New Jersey and still owe the $3,500 to New York (because New York would still charge $26,000 and give a credit for $22,500). New York and New Jersey don't have tax reciprocity.

starfisht · ‎March 9, 2025

Thanks. A related question. Is a 2025 estimated tax required to be paid to NY as well as NJ?

Turbotax calculated for me the estimated tax to be paid to NJ. It seems to be equal to the NJ tax on his dividend and interest income in 2024. There is no estimated NJ tax for his other source of income, salary. Strangely, TT did not generate anything at all about estimated tax for NY.