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This blog was originally posted 10/19/2019

PA and NJ are breaking up-no more tax reciprocity

If you work in PA and live in NJ or work in NJ and live in PA your state taxes are about to change.

Starting January 1, 2017 these states will no longer have a reciprocal agreement. In the past each of these states would let their taxpayer have taxes for their state of residence withheld at work, and just file their own resident state return. Starting in January the taxpayers that this affects will have to file both state returns for 2017. 

    Will you pay more state taxes?

Both states will generate revenue from this change, with NJ being the winner, receiving a net increase in state tax of $180 million from PA residents. PA will have an increase of $35 million. The majority of the increase in taxes to NJ will come from PA residents that work at well paying jobs in NJ. The break even point seems to be around $65,000 for single taxpayers and $110,000 for married taxpayers. If you earn more than these amounts you paid 3.07% in state tax in 2016 and you could pay up to 8.97% in 2017. You can look at the NJ tax rates here
 http://www.state.nj.us/treasury/taxation/pdf/current/njtaxratesch.pdf

Pa will get their increase in taxes from NJ residents that work in Philadelphia or other localities that have an income tax. In 2016 these taxpayers paid 
Philadelphia 3.4828% and got a credit for this tax toward their NJ tax.
Many NJ residents only paid Philadelphia tax, with the credit maxing out their NJ state tax liablility.

In 2017 these taxpayers will pay PA an additional 3.07% in PA tax. 

The people that will end up paying more tax in this scenario are single workers earning less than about $80,000 and married workers earning less than $150,000.

Pa does have an exception for very low-income taxpayers that will not be affected by the change.

TL;DR,: If you work/live in both PA and NJ you will file 2 tax returns for tax year 2017 instead of one. Many people will pay more state tax.