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I just read a story in Forbes that details that Christie has ended the reciprocal tax agreement between PA and NJ. The article references the PA flat tax. Does anyone know the implications for Philly wage tax? I live in NJ and work in Philly. I pay wage tax + NJ state tax, but my NJ tax is offset by the wage tax.
Oh no! Living is SNJ and taking the bridge to work in Philadelphia was $1250/year bad enough. Time for a job change and work in NJ. I hear Lowes is hiring...
Last edited by Jerseykids2011; 09-06-2016 at 11:35 AM..
I just read a story in Forbes that details that Christie has ended the reciprocal tax agreement between PA and NJ. The article references the PA flat tax. Does anyone know the implications for Philly wage tax? I live in NJ and work in Philly. I pay wage tax + NJ state tax, but my NJ tax is offset by the wage tax.
Depending on the tax bracket you are liable for NJ state tax, It's not unusual that the city wage tax offset the NJ tax due. What's unclear to me is how this credit will work if one pay both the PA and city wage tax. The way NJ tax paid to other jurisdiction works now, you can never get more credit for taxes you paid to other jurisdiction so in other words (no refund). If PA is with holding your PA state tax, I am unsure if one can file for a refund for being a non PA resident.
Depending on the tax bracket you are liable for NJ state tax, It's not unusual that the city wage tax offset the NJ tax due. What's unclear to me is how this credit will work if one pay both the PA and city wage tax. The way NJ tax paid to other jurisdiction works now, you can never get more credit for taxes you paid to other jurisdiction so in other words (no refund). If PA is with holding your PA state tax, I am unsure if one can file for a refund for being a non PA resident.
As I understand it, if this actually goes through (Christie and Legislature don't cut a deal between now and January 1) if you live in NJ and work in Philly, your employer would withhold PA Income Tax and Philly Wage Tax, and possibly (more on this later) NJ Income Tax. Then at tax time you would file a PA Return. You would then use the tax actually paid in PA Income Tax and Philly Wage Tax as a non-refundable credit (taxes paid to other jurisdiction) on your NJ return, but if you paid more to PA/Philly than you would owe in NJ you don't get any of that money back. The key to all of this is to understand that PA Income Tax is a flat amount of 3.07%. NJ Income tax is progressive ranging from 1.4% to 8.97% (with all money under $500k taxed at 6.37 or less). See brackets:
So if you live in NJ and work in philly, you will pay approximately 6.78% to PA/Philly (3.07% income tax/3.72% wage tax). If you make less than 500k per year, this will definitely end up being more than you would have paid under the prior scheme (Philly Wage Tax + (NJ Income tax - credit for philly wage tax paid)=6.37% or less). This will fall the hardest on lower income people who usually would only pay the philly wage tax of 3.72 which would completely offset any potential NJ income tax liability (up to income earned below $40k/yr). Instead they'll now be paying 6.78% at a minimum on their taxable income. That's a 3% income tax hike for them, all without Christie having to say that he raised NJ income tax because technically those people will pay the increased tax to PA.
Oh no! Living is SNJ and taking the bridge to work in Philadelphia was $1250/year bad enough. Time for a job change and work in NJ. I hear Lowes is hiring...
Can someone break it down for the opposite direction?
For a person who lives in Philly and works in NJ how does that work.
Right now I live in Philly & work in NJ. So I just get PA & City wage taxes withheld from my NJ employer and I end up paying (3.07% to PA state & ~3.92% to the city).
I keep reading that if you make a combined salary of over $113k or something this will cause you to pay more but I am not sure how?
If I end up having to pay NJ State (Which will be several thousand more than I currently pay when compared to PA state) and still on the hook for the city wage tax and or any PA state income tax then I am going to get totally screwed....
If I take some general numbers. Say $200k total salary for married couple living in Philly and working in NJ.
Current:
PA Income Tax (3.07% * $200k) = $6140
Philly Wage Tax (3.92% * 200k) = $7840
NJ = NONE
TOTAL = $13980
If agreement ends:
NJ Income Tax = (Tiered * 200k) = $10613.75
PA Income Tax = NONE Correct?
Philly Wage Tax = $7840 - (Deduction of Difference between NJ vs PA where 10613.75 - 6140 =) 4473.75 = $3366.25
TOTAL = $13980
Something is wrong. I always break out to be equal. I think I am calculating the Philly Wage tax wrong with deduction or missing something with the PA income tax.
Any ideas?
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