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NJ and PA Income Tax Updates

Sep 15, 2016 | Tax Planning

nj-and-pa-income-tax-updates“The curtain rises on a vast primitive wasteland, not unlike certain parts of New Jersey.”

Woody Allen

Brinen & Associates handles the taxes and legal matters for a solid roster of New Jersey businesses and clients, as I am licensed to practice law in the Garden State (also known as America’s Medicine Cabinet!). We’re following recent headlines about the end of the income tax reciprocity deal between New Jersey and Pennsylvania – the Keystone State and the birthplace and current resident of my little brother, Aaron – because it affects our clientele. There’s a lot of uncertainty for which we need to prepare. But first…

A Crash Course In State Reciprocal Agreements

A state reciprocal agreement is also referred to as reciprocity and can benefit workers who reside in one state, but work in another. It can eliminate the hassle of filing multiple state returns by allowing residents to request exemption from tax withholding in the reciprocal state.

Additional states actively involved with income tax reciprocity deals include: District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, North Dakota, Ohio, Virginia, West Virginia, and Wisconsin.

In The News

For nearly 40 years, New Jersey and Pennsylvania have had this agreement. Forty years! That’s a little less than a “me” of lifespan. However, New Jersey Gov. Chris Christie is ending it as part of an effort to compel his state’s Legislature to enact $250 million in cuts to public worker health benefits. One state senator calculated that “more than 100,000 people [will pay] over $1,000 more annually in taxes” to make up the difference.

Nice job, Governor. Have a donut.

Impact: Employees

For those of you who cross the Delaware River to go to your job, it might have a financial impact on you, and at the very least, it will change your paperwork.

New Jersey has six marginal income tax rates for individuals, ranging from 1.4 percent for those earning $20,000 or less to 8.97 percent for income greater than $500,000. There are seven rates for married couples filing joint returns.

Pennsylvania’s rate is a flat 3.07 percent.

Depending on earnings, this was a good deal for some folks — like wealthier, commuting Pennsylvanians. Starting in 2017, more tax revenue will be generated off Jersey boys and girls who won’t be able to file in Pennsylvania.

Christie said he’s open to reassessing this fiasco if the funds can be found. If that can’t happen, it’s important to remember that New Jersey residents who work in Pennsylvania will need to complete income tax form REV-419. Pennsylvania residents who work in New Jersey need form NJ-165.

Impact: Entrepreneurs and Businesses

As far as businesses are concerned, it could make it more difficult and expensive to attract out-of-state talent, particularly from the suburbs.

With that in mind, a potential 5 percent income tax difference will likely heavily weigh on entrepreneurs when they are deciding where to live and where to open shop. Both states’ economies are sure to be impacted.

What To Do…For Now

In terms of filings, we don’t yet know what will happen until the end of 2017. This leads to instability. That’s always bad for the small business owner, because it slows down proper tax planning.

Businesses need to be mindful of their workers in terms of “who lives where,” and might expect some employee resignations due to these new financial burdens.

New Jersey may have favorable gas prices but it has historically been very tough on businesses and entrepreneurs. This news just pushes things further in that direction.

To quote one of my favorite new movies, “The Martian,” that’s “quite a dick punch.”

Let’s start planning as best as we can now. Businesses and individuals who will be affected by these anticipated changes should contact Brinen & Associates.


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I formerly worked as a satellite employee from my home state of New Jersey. I ended my employment with my former employer in 2016. In 2018, I was sued by my former employer for $1.1 million in Illinois State Court. I was referred to Brinen & Associates, LLC by a friend who is a client of the firm. Brinen & Associates, LLC came highly recommended. I contacted Joshua Brinen and then had a consultation at his office with his colleague Mark White. Together, Messrs. Brinen and White explained my options...

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