The map below shows 17 orange states (including the District of Columbia) where non-resident workers living in reciprocal states are not required to pay taxes. Move the slider over each orange state to see their reciprocity agreements with other states and determine the form that non-resident workers must present to their employers to be exempt from withholding in that state. But the differences between the way New Jersey and Pennsylvania collect personal income taxes are more dramatic — and are at the heart of the recent move to make it harder to end the long-standing tax deal between the two states. Pennsylvania and New Jersey end reciprocity agreement that deprives two states of starting 2017 New Jersey has had past reciprocity with Pennsylvania, but Gov. Chris Christie announced the agreement with effect from January 1, 2017. You should have filed a non-resident tax return in New Jersey starting in 2017 and paid taxes there if you work in the state. The Pennsylvania Department of Revenue announced that New Jersey is termening its reciprocal agreement with Pennsylvania with effect from January 1, 2017, requiring individuals to file two income tax returns and withhold employers for both states beginning in 2017. Residents of Pennsylvania and New Jersey receive a credit for income tax paid on wages earned in the other state. This can greatly simplify the taxing time of people living in one state but working in another, which is relatively common among those who live near national borders. Many States have reciprocal agreements with others. Unfortunately, there is no doubt that some employers and payroll companies have wasted time and resources preparing for the policy change. There is no doubt that the change would have generated additional revenue for New Jersey, but would have had a negative impact on many businesses and commuters between states.
But the agreement will be maintained for the foreseeable future. While income tax structures were similar when the deal was first struck, the New Jersey Income Tax has become over the years a progressive system in which residents pay at a higher rate as they ascend across a number of income brackets. Rates range from 1.4% at the bottom to 10.75% for profits above $1 million. In Pennsylvania, state income tax is levied at a flat rate of 3.07%, regardless of income. For example, well-paid Pennsylvania executives who work in New Jersey pay income taxes as part of their home country`s flat tax reduction, as well as all local taxes. And while their income taxes go to Harrisburg, they also indirectly strengthen New Jersey`s, including, say, buying lunch here or filling their gas tanks before they go home.
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