NJ Income Tax - Credit for Taxes Paid to Other Jurisdictions
If you are a New Jersey resident but you have income from sources outside New Jersey, and you are required to pay tax on that income to a jurisdiction outside New Jersey, you may be eligible for a credit against the income tax you owe to New Jersey.
You qualify for the credit if you paid income or wage tax on the same income in the same year to both New Jersey and to another taxing jurisdiction outside New Jersey.
For purposes of this credit, a taxing "jurisdiction" means any state in the United States other than New Jersey, or a political subdivision of another state, such as a city, or the District of Columbia. However, you cannot claim a credit for income tax paid to the Federal Government, Canada, Puerto Rico, or any other foreign country or territory.
New Jersey requires you to pay tax on all of your income, regardless of where it's earned. The credit reduces your New Jersey income tax liability so that you don't pay taxes twice on the same income; it is not a refund of the taxes you paid to another state or city. Your credit may never exceed the amount you would have paid if you had earned the income in New Jersey.
To apply for the credit you must complete a New Jersey Schedule A and enclose it with your New Jersey income tax return. If you are claiming a credit for income or wage taxes paid to more than one jurisdiction, you may have to complete a separate Schedule A for each jurisdiction. You must also complete a separate Schedule A for each tax imposed by a jurisdiction.
Enter on Form NJ-1040 the total amount of credit allowed from your Schedule A(s). You must also enter on the return a two-digit code for the jurisdiction for which you are claiming a credit. A list of codes is available in the NJ-1040 instruction booklet. If you are claiming a credit for taxes paid to more than one jurisdiction (e.g., New York State and New York City or the State of Delaware and the State of Maryland), use the code for “Multiple Jurisdictions.” If the jurisdiction to which you paid taxes is not listed, use the code for “Other.”
New Jersey does not require a copy of the income tax return(s) filed with the other jurisdiction(s) to be enclosed with Form NJ-1040. Therefore, New Jersey residents who claim a credit for taxes paid to another jurisdiction on income received from sources outside the State can file their returns electronically using either NJ WebFile or NJ E-File if they meet the other eligibility requirements (and most taxpayers do). However, you should retain complete copies of any returns filed with other jurisdiction(s) for your records in the event your New Jersey return is audited.
As a result of the Reciprocal Personal Income Tax Agreement between Pennsylvania and New Jersey, compensation paid to New Jersey residents employed in Pennsylvania is not subject to Pennsylvania income tax. Therefore, New Jersey residents may not claim a credit on Schedule A for taxes paid to Pennsylvania on such earnings. However, New Jersey residents may claim a credit for taxes paid to Pennsylvania on other types of income (for example, business income or gain from the sale of property) which are taxable in both states by completing Schedule A.
Please note that the New Jersey/Pennsylvania Reciprocal Agreement does not apply to the income or wage tax imposed and collected by the City of Philadelphia or any other municipality in Pennsylvania. Thus, a New Jersey resident who works in Philadelphia and pays city wage taxes may claim a credit for the taxes paid to Philadelphia.
If you paid income taxes or wage taxes to another jurisdiction on S corporation income, and that income is also taxed in New Jersey in the same year, you may be eligible for a credit.
More information concerning the treatment of S corporation income and distributions qualifying for a credit is available in Tax Topic Bulletin GIT-9S, Income From S Corporations.
More information on how to determine your credit is available in Tax Topic Bulletins GIT-3W, Credit for Taxes Paid to Other Jurisdictions (Wage Income), or GIT-3B, Credit for Taxes Paid to Other Jurisdictions (Business/Nonwage Income).
These two publications can be viewed in Adobe Acrobat PDF format. PDF formatted documents contain the same text as the original printed documents. To view them you must have a PDF viewer which is available free from Adobe.
More information is available on New Jersey residents working in Pennsylvania.
You qualify for the credit if you paid income or wage tax on the same income in the same year to both New Jersey and to another taxing jurisdiction outside New Jersey.
For purposes of this credit, a taxing "jurisdiction" means any state in the United States other than New Jersey, or a political subdivision of another state, such as a city, or the District of Columbia. However, you cannot claim a credit for income tax paid to the Federal Government, Canada, Puerto Rico, or any other foreign country or territory.
New Jersey requires you to pay tax on all of your income, regardless of where it's earned. The credit reduces your New Jersey income tax liability so that you don't pay taxes twice on the same income; it is not a refund of the taxes you paid to another state or city. Your credit may never exceed the amount you would have paid if you had earned the income in New Jersey.
To apply for the credit you must complete a New Jersey Schedule A and enclose it with your New Jersey income tax return. If you are claiming a credit for income or wage taxes paid to more than one jurisdiction, you may have to complete a separate Schedule A for each jurisdiction. You must also complete a separate Schedule A for each tax imposed by a jurisdiction.
Enter on Form NJ-1040 the total amount of credit allowed from your Schedule A(s). You must also enter on the return a two-digit code for the jurisdiction for which you are claiming a credit. A list of codes is available in the NJ-1040 instruction booklet. If you are claiming a credit for taxes paid to more than one jurisdiction (e.g., New York State and New York City or the State of Delaware and the State of Maryland), use the code for “Multiple Jurisdictions.” If the jurisdiction to which you paid taxes is not listed, use the code for “Other.”
New Jersey does not require a copy of the income tax return(s) filed with the other jurisdiction(s) to be enclosed with Form NJ-1040. Therefore, New Jersey residents who claim a credit for taxes paid to another jurisdiction on income received from sources outside the State can file their returns electronically using either NJ WebFile or NJ E-File if they meet the other eligibility requirements (and most taxpayers do). However, you should retain complete copies of any returns filed with other jurisdiction(s) for your records in the event your New Jersey return is audited.
As a result of the Reciprocal Personal Income Tax Agreement between Pennsylvania and New Jersey, compensation paid to New Jersey residents employed in Pennsylvania is not subject to Pennsylvania income tax. Therefore, New Jersey residents may not claim a credit on Schedule A for taxes paid to Pennsylvania on such earnings. However, New Jersey residents may claim a credit for taxes paid to Pennsylvania on other types of income (for example, business income or gain from the sale of property) which are taxable in both states by completing Schedule A.
Please note that the New Jersey/Pennsylvania Reciprocal Agreement does not apply to the income or wage tax imposed and collected by the City of Philadelphia or any other municipality in Pennsylvania. Thus, a New Jersey resident who works in Philadelphia and pays city wage taxes may claim a credit for the taxes paid to Philadelphia.
If you paid income taxes or wage taxes to another jurisdiction on S corporation income, and that income is also taxed in New Jersey in the same year, you may be eligible for a credit.
More information concerning the treatment of S corporation income and distributions qualifying for a credit is available in Tax Topic Bulletin GIT-9S, Income From S Corporations.
More information on how to determine your credit is available in Tax Topic Bulletins GIT-3W, Credit for Taxes Paid to Other Jurisdictions (Wage Income), or GIT-3B, Credit for Taxes Paid to Other Jurisdictions (Business/Nonwage Income).
These two publications can be viewed in Adobe Acrobat PDF format. PDF formatted documents contain the same text as the original printed documents. To view them you must have a PDF viewer which is available free from Adobe.
More information is available on New Jersey residents working in Pennsylvania.
