An editor with a technical question: In an article about place of employment vs. place of residence, we have an example of an employee who lives full-time in New York State but works full-time in an office in New Jersey. One expert told me he pays all state income taxes to New York as his place of residence. Another told me the exact opposite: all taxes to New Jersey as place of employment.
For the purposes of this article, there are no extra details: the employee does not have a pied a terre in New York, nor does he do any work, freelance or otherwise, from his home.
It depends on state law. For example, DC/MD/VA are fully reciprocal, i.e., you pay only where you live.
OTOH, KS and MO have no reciprocity, so if you live in one state and work in the other you pay both. The usual treatment in such cases is that the resident state gives the taxpayer a credit for the tax paid to the nonresident state, but there are exceptions to that too.
I believe NY/NJ operate under the "usual" no reciprocity arrangement I described, but someone who knows for sure should be along shortly.
"Phil Marti" wrote in news:il1Xj.23829$lj.5664 @trnddc01:
I have been paying NY (where I work) and deducting this as a credit from NJ taxes as per NJ instructions. I would think that in your case (reverse case), it should work again with reciprocity: NJ taxes first, since it is earned there, then NY takes its taxes, with the NJ tax paid as a a credit
Richard, the answer is that your employee's NJ earnings are taxed in BOTH NY and NJ.
States generally tax residents on all of their income, regardless of its source. They can tax nonresidents only on income with a source in the state. Income from personal services has its source where the services are performed. So a person who lives in State A and works in State B pays tax to both states on his or her earnings. The resulting double taxation is generally mitigated by one state (usually the residence state) allowing credit for the tax paid to the other, or by a reciprocal agreement between the two states whereby a resident of one working in the other pays tax only to the residence state.
New York has no reciprocal agreements with any other states, but it will allow a NY resident credit for taxes paid to another state on income with a source in that state. NY Tax Law Sec. 620. The credit is limited to the proportion of the NY tax liability that relates to the income taxed by the other state. 20 NYCRR Sec. 120.1 and 120.2. The result is that, net, the taxpayer pays state tax on that income at the higher of the two states' average rates for his or her filing status, income level, number of dependents, etc.
Your hypothetical employee would have NJ tax withheld from his salary, and would file a nonresident return with NJ. He would file a resident return with NY, including the NJ source income, and claim a credit on the NY return for the NJ tax.
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