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Understanding Reciprocal Agreements: Tax Credits Between New Jersey and Pennsylvania

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Understanding Reciprocal Agreements: Tax Credits Between New Jersey and Pennsylvania

If you live in New Jersey but work in Pennsylvania, or vice versa, taxes might seem complicated. But there’s good news! A “reciprocal agreement” between these two states makes things simpler. This guide explains what this agreement means for you and how you can benefit from it.

What is a Reciprocal Agreement? 

A reciprocal agreement is a pact between two states that allows residents of one state to request an exemption from tax withholding in the other state. In simple words, if you live in one state and work in the other, you only need to pay income taxes to the state where you live. This means:

  • Less paperwork during tax season
  • Potentially more money in your pocket

The New Jersey-Pennsylvania Reciprocal Agreement

The reciprocal agreement between New Jersey and Pennsylvania has been in effect for many years, allowing cross-border workers to simplify their taxes. For instance, a New Jersey resident working in Pennsylvania can submit a form to their Pennsylvania employer to be exempt from Pennsylvania income tax withholding. Instead, they will pay income taxes to New Jersey. The same applies to Pennsylvania residents working in New Jersey.

How It Works:

  • Determine Eligibility: Live in NJ but work in PA? Or the other way around? You’re likely eligible.
  • Notify Your Employer: 
    • Fill out a form (NJ-165 for NJ residents or REV-419 for PA residents).
    • Submit it to your employer to stop withholding taxes for the state you work in.
  • File Tax Returns:
    • Report all your income to your home state.
    • No non-resident tax return is needed for the work state under the reciprocal agreement.

Understanding and Filling Out NJ-165 and REV-419 Forms

NJ-165 Form (For New Jersey Residents Working in Pennsylvania):

  • What It Is: The NJ-165 form is a declaration for New Jersey residents working in Pennsylvania, indicating to their employer that they wish to be exempt from Pennsylvania state income tax withholding.
  • How to Fill It Out:
    • Personal Information: Start by filling in your personal details such as your name, address, and social security number.
    • Declaration: By signing the form, you’re declaring that you are a resident of New Jersey and wish to have taxes withheld for New Jersey only.
    • Submission: Hand the completed form to your employer’s payroll or HR department. They will adjust your withholdings accordingly.

REV-419 Form (For Pennsylvania Residents Working in New Jersey):

  • What It Is: The REV-419 form is similar to the NJ-165 but for Pennsylvania residents. It’s used to inform employers in New Jersey that you are exempt from New Jersey state income tax withholding.
  • How to Fill It Out:
    • Personal Information: Fill out your full name, Social Security Number, and Telephone Number. Then provide your Street Address, City, State, and Zip Code.
    • Exemption Information: Indicate your reason for claiming an exemption from withholding. Check Box B, declaring that you are a resident of a reciprocal state.
    • Declaration: Your signature on the form is a declaration of your Pennsylvania residency and your wish to be taxed there instead of in New Jersey.
    • Submission: Once completed, give the form to your employer in New Jersey to ensure they withhold taxes for Pennsylvania.

Tips for Both Forms:

  • Ensure all the information you provide is accurate to avoid any issues with tax withholdings.
  • Always keep a copy of the form for your records after submitting it to your employer.
  • You may need to submit these forms annually or if you change employers. 
  • Be aware of any changes in state tax laws that might affect the reciprocal agreement or these forms.

Need Help?

Understanding and navigating reciprocal agreements between New Jersey and Pennsylvania can be straightforward on the surface, but sometimes you might need a bit of extra help. That’s where DimovTax can assist:

  • Our team knows all about taxes between New Jersey and Pennsylvania. We can break down the tough tax talk into simple advice, tailored just for you.
  • Need to fill out the NJ-165 or REV-419? We can guide you through every step, making sure everything’s spot on and submitted right.
  • Tax rules can change, and it’s hard to keep up. We keep an eye on these for you, ensuring you’re always in the know and your tax filings are on point.
  • Everyone makes mistakes, but you don’t want them on your tax forms. Our team can check your forms to catch any little errors before they become big problems.

At DimovTax, we aim to take the stress out of taxes, ensuring you get the most out of the NJ-PA agreement while keeping everything smooth and easy. If you need help or have any questions, please contact us today through the form below.

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