The PA & NJ Tax Reciprocity Agreement is Ending on Jan 1, 2017: Here’s What You Need to do to Prepare

Due to the end of a 40 year old reciprocal tax agreement, starting January 1, 2017 all Pennsylvania residents working in New Jersey will become subject to New Jersey income tax and all New Jersey residents working in Pennsylvania will become subject to Pennsylvania income tax. How will this affect you? The change will cause residents of New Jersey and Pennsylvania to be subject to income tax based on where they work instead of where they live.

New Jersey Employers
If you are a New Jersey employer of Pennsylvania Residents, make sure you provide a Form NJ-W4 to all employees that work in New Jersey. You must also withhold New Jersey income tax for any employee working in New Jersey, including Pennsylvania residents.

Be aware that you can no longer accept New Jersey Form NJ-165, Employee’s Certificate of Nonresidents in New Jersey from Pennsylvania residents. If you have not already done so, be sure to remember to register for a Pennsylvania employer withholding tax account so you can begin withholding Pennsylvania income tax if you have employees working in Pennsylvania.

Keep in mind that if you no longer need to withhold Pennsylvania income taxes for your employees, you must cancel your Pennsylvania employer withholding account effective on December 31, 2016.

Pennsylvania Employers
If you are a Pennsylvania employer of New Jersey residents you will need to withhold Pennsylvania income tax for any employee working in Pennsylvania including New Jersey residents.

Be aware that you can no longer accept Pennsylvania REV-419, Employee’s Non-Withholding Application Certificate from New Jersey residents.

Keep in mind that as a Pennsylvania employer, you may not be required to register with New Jersey as an employer, but you should be prepared in the event that your employees ask you to voluntarily withhold New Jersey income tax in addition to their Pennsylvania withholding.

Your Anchin Relationship Partner can help you navigate these changes before year end. For any questions regarding your particular situation, please reach out to your Anchin Relationship Partner or Clarence Kehoe, Leader of Anchin’s Tax Department.