Discussion:Consumer Questions: NJ non-resident (living in PA working in NJ)

You will file as a part-year resident in both states. You owe PA tax on all of your income, including your NJ earnings, from the time you became a PA resident. You owe NJ tax on all of your income for the part of the year when you were a NJ resident. If you have any NJ source income other than compensation for services (e.g., income from property in NJ, flowthrough income from a NJ business, etc.), that income is subject to NJ tax regardless of your residence. Income from intangibles, such as interest and dividend income or gain/loss from sales of securities, is taxable only by the state of residence at the time the income was earned, even if the payer of the income is located in the other state. So, for example, interest from a savings account in a NJ bank is subject to PA tax after you become a PA resident, and not subject to NJ tax.

Be sure to get your withholding changed to PA from NJ so you don't have this problem again in 2008. If your employer has no activity in PA and is not registered as an employer there, it may not be able or willing to withhold PA income tax from your wages. In that case you must make quarterly estimated tax payments to PA.

Joe, Kevin and D&T have given you good advice. Find a CPA or EA who is familiar with both states.

I believe Pennsylvania will pay interest. It is a funny state: perhaps one or two clients a year receive questionaires on their U-E forms asking for proofs and employer letters before the refund is released. Another hold-up comes when a pension payer withholds state tax on someone who retires early, but where their plan permits such early withdrawals, or the pension is given as part of an early retirement buyout. The State tries to tax the money, and it can take time to clear up. Meanwhile the refund sits with the State.

Delaware is another state which pre-audits returns and does not release refunds.

I wasn't aware that they ever reviewed and settled individual income tax returns, but maybe they do/did.

When the Pennsylvania Income Tax was passed in 1971 there was no such thing as Employee Business Expenses; then in 1976 the Staley case allowed salesmen to deduct their expense. A Union Member, John Ritz, sued to be able to deduct union dues and won in the PA Supreme Court in 1981. That court allowed all employee deductions necessary to make money. At that time the story went that the Court had a Democratic majority, while the State had a GOP governor and legislature, and that was a large part of the reason for the decision....maybe this is a fable, maybe not, because after all, it was the Democrat Milton Shapp who passed the income tax. His first 1971 version was thrown out by the GOP dominated Supreme Court of that day, so maybe Ritz was quid pro quo.

New Jersey is the only state that I am aware of which gives a credit for paying local taxes if there are no other state taxes to credit [e.g.PA]. You must have worked in Philadelphia.

And she files a regular PA-40.

So now she is underpaid for PA and overpaid for NJ. She needs to file a nonresident return with NJ, reporting zero NJ source income, to get her withholding back. Do that first and maybe the refund will arrive before she has to file and pay in PA.

And send her to her employer's payroll department forthwith to straighten them out so she doesn't have the same problem in 2008.

Now, for my father in law: He moved from NJ to PA in 01/31/07. However, he still had residence in NJ until 08/30/07 (took a while to sell his house). He had a 401k distribution and pension income. How do I handle this for NJ? Can it be prorated for the one month in 2007 that he lived there? Or can I blow off NJ all together (doubtful)? Confused since he was not physically working. Hoping all PA since pension income is not taxable; if not, he will owe a few grand to NJ. Thanks!

I am not really clear about the sentence concerning 30 days, but it would appear that your father was definitely a resident for one month. The question then devolves to whether the distributions from Feb until the date the house was sold are income from a NJ source. See the other discussion on pensions from a former state, and Katiej's answer. Discussion: Retirement earnings from another state You might find you will have to seek out a professional.

As D&T's quote suggests, NJ defines a resident as a person who is either domiciled in the state, or is domiciled elsewhere but maintains a permanent place of abode and spends more than 183 days of the taxable year in the state. A NJ domiciliary is a nonresident as long as he maintains no permanent place of abode in NJ, does maintain a permanent place of abode somewhere else, and spends no more than 30 days of the taxable year in NJ. N.J. Rev. Stat. §54A:1-2(m). (That's where the 30 days comes in, D&T. I find the NATP statement quite confusing <G>. Spending more than 30 days in NJ, by itself, certainly would NOT make anybody a resident there.)

Your father was domiciled in NJ until he moved to PA. At that time his domicile may have changed to PA, depending on the facts. It sounds as though he intends this to be a permanent move, and that the only reason he continued to own the home in NJ was inability to sell it more quickly for the price he wanted. Did he use the NJ house as a place of abode after the move to PA? If not, its continued ownership while trying to sell doesn't really signify as a tie to NJ.

A change of domicile generally requires all of three elements: (1) abandonment of the previous domicile (physically moving away from it); (2) moving to and residing in a new location; and (3) an intent to remain in the new location permanently or indefinitely. If your dad met all of those requirements when he moved to PA, he became a domiciliary resident of PA at that time. (While an individual can be a tax resident of more than one state at the same time, a person has only one domicile at a time.)

On the other hand, if the move to PA was intended to be temporary, his domicile remains in NJ and he is still a tax resident there. PA's definition of a resident is almost exactly identical to NJ's, so he would be a resident of PA as well if he maintained a permanent place of abode and was present in PA for more than 183 days. However, if his presence there was intended to be temporary, his PA place of abode may not meet the definition of "permanent" and he may be a nonresident. It all depends on the purpose for which the move was made.

Federal law prohibits states from taxing nonresidents' retirement income (pensions, IRAs, 401(k)s, etc.) on a source basis (see reference at the link D&T provided). Assuming your father's move to PA was a change of domicile, he was a NJ resident for one month of 2007 and a PA resident for 11 months. He would file as a part-year resident in both states. His pension is taxable in NJ to the extent he received it while he was a NJ resident -- i.e., for the first month. After that it is taxable in PA. No duplication. The 401(k) distribution is taxable in the state where he was a resident when he received it. If he took it out in January, it's taxable in NJ and not in PA. If he took it out later, it's taxable in PA but not NJ. Again, no duplication.

Through exchange of information NJ may receive his W-2P (even if there is no state tax withheld) and it will show the entire amount. NJ won't know when he received anything, but HE knows. Report it correctly on the returns and it will be fine.

This is the first year I am using Turbo Tx.. I have been successful of the federal part.. I am now at the state part and am totally confused... I live in PA - Working in Jersey.. For the first paychecks of 2007 - some NJ taxes were taken out and then it went into paying PA taxes.. How do I know if I have to file NJ state taxes as well as PA taxes? I would like PA to get the credit I paid in NJ (as it looks like we will end up oweing in PA).

Can anyone help please?

Best to file the NJ return ASAP so that perhaps the refund will come in before you have to file and pay in PA.

I am preparing my sister & her daughters tax returns. My sister lives in NJ, and claims her daughter as a dependent. The daughter was a junior/senior in college in PA in 2007. The daughter used her local PA address for her job in PA, so naturally PA income taxes were withheld. I was going to just file a PA tax return, but I thought that college addresses were considered temporary. Filing a PA return for the daughter might cause some problems with claiming her as a dependent.

But my sister is providing more than 1/2 of her support, and I think the daughter should still be considered a NJ resident.

But still I'm not sure of how to file this because of the PA taxes that have been withheld, and as far as I understand because of the reciprocal agreement, the PA taxes cannot be deducted on the NJ resident return.

A little help would be appreciated.

My wife moved to PA from NJ in June 2006. I moved to PA to join my wife in Aug 2007. However I still work in NJ and do not have any PA taxes withheld on my W2. We are doing a joint filing this year. I am planning to do the following:

1) File NJ Part Time resident 2) File NJ Part time non resident 3) File PA Resident

I used turbo tax premier to file my taxes. For the NJ Part time resident, I am entering the income earned while being a resident of NJ and for the NJ NR, I am entering the income earned after moving to PA. I have also allocated the taxes withheld by NJ in the same ratio. I was expecting to get a refund for the taxes I paid to NJ after moving to PA. But the turbo tax shows a tax due on my NJ Non Resident return. How can I correct this? On the Non resident Form, there are two columns: Col A - Gross Income everywhere Col B- Amount from NJ sources.

Should I be entering zeroes for Col B?

Also if I enter zeroes, should I write a covering letter expalaining the situation? Is it required to attach the PA return along with the NJ NR return?What other documents need to be attached?

Thanks Joe

No letter should be needed, make sure dates of residency and non-residency are filled in.

No Pa copy of return required by NJ.

W-2 showing NJ witholdings.

File separate returns for PA. Wife R, You RPartYear, unless you happen to fall under PA Schedule SP provisions.

She works in NJ and I work in Philadelphia. Currently, because of the reciprical agreement I am able to use my Philadelphia Wage Tax Credit against my NJ State taxes. However, if I move to PA, do I open myself up to more taxes? Any input into if this is a good or bad idea? Advantages vs. Disadvantages of moving to PA.

Thanks.

NJ permits the deduction of amounts contributed to 401Ks; PA taxes them on the way in, but if you are near retirement, consider that PA exempts all pension income from tax; NJ only exempts 20K and only if you are over 62 and earn less than 100K. PA will allow the pension to be tax free if the payment is permitted under the plan in event of early retirement.

Then you must look at other qualities of life issues and their cost: auto insurance, the price of gasoline [people who live near the border will cross the bridge to NJ to buy gas and liquor, but buy cigarettes in PA....we won't even get into the state of Delaware].

Good luck

I am a permanent resident of PA. I will be working in NYC for (probably) a few years. I am thinking about getting an apartment in North NJ, but my family and permanent residence will remain in PA. I will probably be in NJ for more than 183 days (and parts of days). So I think this makes me a resident of both PA and NJ, with PA being the original and permanent residence. I know I will need to pay NY state taxes on any income earned in NY. Bit I'm wondering about PA and/or NJ taxes. I think as a PA resident I am eligible for the reciprocal agreement and should not need to pay any NJ taxes. I believe that I will also receive a credit for any NY state taxes on my PA state taxes. Does this sound correct? Thanks.

If you rent in NJ, and you spend more than 183 days there, you have created a permanent home in NJ and would be considered a NJ resident also. In other words, domicile is PA and residence is NJ. If you think this is not possible, read about Mr. Dorrance, a Campbell Soup founder, whose estate was found subject to tax in both states (http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=us&vol=296&invol=393) This is a very famous case decided by the SCOTUS in the 1930s.

On the other hand, I would see no reason why you could not claim a credit for payment of tax to NY against the possible NJ liability. I know of no rule that says you cannot claim credit for the same taxes paid against two states. Once again, be aware: 403(b) plans, and certain 125 plans are taxed by NJ.

Katiej will undoubtedly show up soon and correct any misapprehensions I might have, but I think you might be best to live in Bucks County, Easton, Stroudsburg or Milford.

Then again, I note the pirates who run DRPA raised the fee to $2 each way.....funny, here in NJ Corzine and company get blasted for upping the tolls on the Parkway for the first time in a long time, but those crooks, who are not elected, blithely add a dollar so they can build a soccer stadium in Chester.

He is a part year resident of each state. You would file a resident New Jersey return (NJ 1040) for the part of the year when he was a resident. I think you will also have to file a nonresident NJ return (NJ 1040NR) for the nonresident part of the year, reporting zero NJ source income (citing the reciprocal agreement) and claiming credit for the tax withheld after the change of residence. NJ may be the last state that requires two returns to be filed by a part-year resident, one for the resident part and the other for the nonresident part of the year.

He would file a part year resident return in PA; they do it all on one form, PA 40, but it would include only income earned/received after he became a PA resident.

Death&Taxes may be able to give you more detailed information than I can, since he sits almost on that border <G>.