You might think you are seeing double if you are worried about the New Jersey double tax!

The New Jersey Double Tax: do NJ residents who work in NYC get taxed twice?

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Wait a minute! Did I get double taxed? This is a question you’re probably asking if you live in NJ and work in NYC. In this article we’ll talk about the myth of the “New Jersey double tax” and what you need to know if you are worried about getting taxed twice if you live in New Jersey and work out of state.

Before we get started, if you’re a New Jersey resident (or thinking about moving to or retiring in New Jersey), take a moment to check out our other blogs:

A checklist for moving to Morristown, NJ from NYC

5 must-know benefits of retiring in Morristown NJ (aside from Bruce Springsteen)

What is the average income in New Jersey? [2022 update]

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Living in New Jersey is great…but what is it costing me?

Chances are if you’re reading this blog, you are a fellow New Jerseyan.

Hello!

As financial advisors in Morristown, we’ve had the privilege of getting to know and love many of the wonderous aspects of Morris County, NJ.

While we think living here is great, we know that New Jersey comes with its own share of financial and tax considerations that must be addressed. And, living here can be expensive sometimes. If you are of retirement age, you may want to learn about the tax breaks and opportunities for special tax treatment that may apply. We wrote about all this in our blog about retiring in New Jersey.

And now on to today’s feature presentation: Do you get double taxed if you live in New Jersey and work in New York?

Is the New Jersey double tax a myth?

While it’s certainly alarming to imagine paying taxes in both states if you live in New Jersey and work in New York City, most of the time it’s not a concern (as we’ll explain below).

Do you get double taxed if you live in New Jersey and work in New York?

 No. You are not “double-taxed.”

Ahhhhh (sigh of relief)!

Remember that you file taxes and claim all income in the state where you reside. So, if you live in New Jersey and work in New York City, for example:

·       You file and pay tax where the income is earned (NYC)

·       You then get a deduction for that tax when you file tax in your home state (NJ)

If you are a W-2 employee, you do not pay New York city tax even if job is in NYC. There is no such thing as the New Jersey double tax. So, to clearly answer the question, “how do you avoid paying taxes in two states?”

You don’t.

You just follow the protocol when you file your taxes, and double taxation is not an issue.

What if you’re a New Jersey business owner?

Different story. If you are a NJ resident who owns and operates a business in NYC, then there are NY and city business taxes you will pay. You should consult with your accountant or business advisor for specifics.

What if I live in other states and work in NYC?

Remember how we said you get a New Jersey credit for taxes paid to other jurisdictions. There is usually not that much difference between the taxes you would pay living in New Jersey or New York. However, it varies state by state.

If you live in certain other states the differential can be significant; for example, Connecticut. Living in Connecticut and working in New York can be more expensive for the CT residents.

What about passive income I earn in another state?

It is common for ultra high net worth investors to own private investments in various states. Every year, you receive a form called a K-1 that you must file with your annual return.

Here’s where it gets burdensome. You may have to file tax returns in many states based on where the private business is located.

Let’s say the private business is located in Oklahoma. Just as if you live in NJ and work in NYC, you face the same issue with paying tax in the other state (Oklahoma) and then claiming the income and credit in the home state (let’s say NJ).

This can get really technical, so again, best to consult with your accountant for advice specific to your situation.

Summing it up on the mythological New Jersey double tax

Just like the New Jersey devil, the infamous New Jersey double tax is a myth. You won’t have to worry about paying taxes on the same income in both states if you live in New Jersey and work in New York, but you do have to file taxes correctly to make sure.

This blog is intended to provide general guidance and can not serve advice as to any one person’s particular situation. For answers to the question, “What taxes do I pay if I live in NJ and work in NYC?”, it may make sense to talk to your accountant or tax advisor.

We are financial advisors in Morristown, NJ serving the local community and beyond. If you have questions about retiring in New Jersey, moving there, or (like us) are just plain old Bruce Springsteen fans, reach out and send us a message.

Sources

NJ Treasury: Division of Taxation. NJ Income Tax – Credit for Taxes Paid to Other Jurisdictions. https://www.state.nj.us/treasury/taxation/njit14.shtml