The Philadelphia New Jersey Reciprocal Tax Agreement: What You Need to Know
The Philadelphia New Jersey Reciprocal Tax Agreement, also known as the Philadelphia-New Jersey Income Tax Reciprocity Agreement, is an agreement between the states of Pennsylvania and New Jersey that allows residents who work in one state but live in the other to only pay income tax in their state of residence.
This agreement was signed into law in 1977 and has since been extended multiple times. It is an important agreement for many people who live in the Philadelphia region, as it allows them to avoid being taxed twice on the same income.
Under this agreement, if you live in New Jersey but work in Philadelphia, you would only pay income tax to New Jersey. Similarly, if you live in Philadelphia but work in New Jersey, you would only pay income tax to Philadelphia. This is because both states have agreed to give each other credit for the income taxes paid by their residents.
It is important to note that this agreement only applies to earned income, which includes salaries, wages, and tips. It does not apply to other types of income, such as rental income or investment income.
If you are a resident of either Pennsylvania or New Jersey and work in the other state, you will need to fill out a nonresident tax return for the state where you work. However, you will be able to claim a credit for the income taxes paid to your state of residence.
It is also important to keep in mind that this agreement only applies to individuals, not businesses. If you own a business that operates in both Pennsylvania and New Jersey, you will need to pay taxes in both states.
In conclusion, the Philadelphia New Jersey Reciprocal Tax Agreement is an important agreement for many people who live and work in the Philadelphia region. It allows residents to avoid being taxed twice on the same income and provides a credit for income taxes paid to their state of residence. If you have any questions about how this agreement applies to you, it is best to consult with a tax professional.