If you`re living or working in Pennsylvania or New Jersey, you may wonder if the two states have a reciprocal tax agreement. Such an agreement allows residents of one state to pay their income tax to their home state only, even if they work in the other state. This article will explore whether Pennsylvania and New Jersey have a reciprocal tax agreement and how it affects taxpayers.
Pennsylvania and New Jersey: An Overview
Pennsylvania and New Jersey are two states located on the East Coast of the United States. They share a border that stretches for 330 miles, making it one of the longest state borders in the country. The two states are similar in many ways, but they also have some differences, including how they tax their residents.
Pennsylvania Income Tax
Pennsylvania is one of only a handful of states that imposes a flat tax rate on all residents` income. Currently, the state`s income tax rate is 3.07%. This means that regardless of your income level, you`ll pay 3.07% on your taxable income. The state does not have any city or local income taxes, which simplifies the tax filing process for Pennsylvania residents.
New Jersey Income Tax
New Jersey, on the other hand, has a progressive income tax system that ranges from 1.4% to 10.75%. The more you earn, the higher your tax rate will be. The state also imposes a local income tax, which varies by municipality. This means that depending on your city of residence, you may have to file multiple tax returns.
Reciprocal Tax Agreement
Now the most crucial question, do Pennsylvania and New Jersey have a reciprocal tax agreement? The answer is no; that means they don`t have an agreement. As a result, if you live in Pennsylvania but work in New Jersey, you`ll have to file a tax return in New Jersey and pay taxes to both states. The same applies if you live in New Jersey but work in Pennsylvania. You`ll have to file a tax return in both states and pay taxes to each state.
However, there is one exception: if you work for a company based in one state, but your employer sends you to work in the other state temporarily, you may not have to pay taxes in the non-resident state. This exception applies if you meet specific criteria, including the length of your stay in the non-resident state and the type of work you`re doing.
Conclusion
In conclusion, Pennsylvania and New Jersey do not have a reciprocal tax agreement. This means that residents of each state who work in the other state must file tax returns and pay taxes in both states. However, there are some exceptions to this rule, including temporary work assignments. As a resident of either state, it`s essential to consult with a tax professional to ensure that you`re complying with all relevant tax laws, including those related to non-resident income taxes.
