In September 2016, the governor of New Jersey ended a tax reciprocal agreement with Pennsylvania Effective January 1st, 2017. This 40-year-old agreement allowed workers who commute to pay income tax to the state where they live, rather than where they work.
Starting in 2017, you will need to withhold PA taxes for your employees that reside in New Jersey. Since PA and NJ have different tax rates, your employee may ask you to voluntarily withhold and remit NJ taxes as well, so they don’t have to make estimated quarterly payments.
Starting in 2017, you will need to withhold NJ taxes for your employees that reside in Pennsylvania. Since NJ and PA have different tax rates, your employee may ask you to withhold and remit PA taxes as well, so they don’t have to make estimated quarterly payments.
If you are an employer in Pennsylvania or New Jersey with employees who commute from another state, we encourage you to ask your employees if they need to make changes to their income taxes. We can set up the changes to start effective January 1st, 2017. This does not affect the 2016 tax year.
If you have any questions - or would like to get in touch with one of our tax experts - please don't hesitate to contact us. We'd be happy to help!