New York and New Jersey Reciprocal Tax Agreement
New York and New Jersey Reciprocal Tax Agreement: What You Need to Know
If you live or work in either New York or New Jersey, you may have heard of the reciprocal tax agreement between the two states. But what exactly is it and how does it affect you?
The reciprocal tax agreement is a pact between New York and New Jersey that allows residents of one state who work in the other to pay income tax only to their home state. This means that if you live in New York but work in New Jersey, you will only pay New York state income tax. Conversely, if you live in New Jersey but work in New York, you will only pay New Jersey state income tax.
This agreement is a great benefit for commuters, as it avoids double taxation and simplifies tax filing. Without the agreement, residents who work in another state would have to file income tax returns in each state and pay taxes to both states. This can be time-consuming and confusing, not to mention expensive.
However, there are some limitations to the agreement. It applies only to wages, salaries, tips, and other forms of employee compensation. It does not apply to income from self-employment or business income. Additionally, the agreement only covers residents of New York and New Jersey. If you live in another state and work in New York or New Jersey, you will have to file tax returns in both states.
It`s also important to note that even with the reciprocal tax agreement, residents of either state may still owe taxes to the other state if they work there for a significant amount of time. The agreement provides for a threshold of 14 days per year before nonresident income tax becomes due, but this can vary depending on your individual circumstances.
Overall, the New York and New Jersey reciprocal tax agreement is a helpful tool for residents who work across state lines. If you are a resident of either state and work in the other, make sure to take advantage of this agreement when filing your taxes.
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