If you live in New York City and started a daily westbound commute across the Hudson River, your tax life just got a little more complicated. Both New York and New Jersey levy state income tax, and both states may require you to file an annual tax return. Fortunately, taxes paid in one jurisdiction can be offset as tax credits in the other, thus preventing the dreaded double taxation. For federal taxes, the tax rate remains the same no matter where you live, but you do need to declare a current address.
Tip
The Supreme Court ruled in May 2015 that two states cannot tax the same income. One state must provide a tax credit for income earned and taxed in another.
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Federal Tax Returns
The federal income tax rates enforced by the Internal Revenue Service are in effect throughout the United States, and for all individuals declaring income from a U.S. source. The annual return must have your current address as of the end of the tax year.
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If you moved to New York in November, for example, but lived most of the year in New Jersey, you would enter your New York address on the return. If you earn income in the US but move out of the country, you still owe U.S. income tax unless you pass the physical presence test: You were physically present in a foreign country (or countries) for a minimum of 330 days of 12 consecutive months.
New Jersey Non-Resident Returns
The state of New Jersey requires that employers withhold state income taxes from employee wages, no matter where those employees may reside. Therefore, as a resident of New York City and a worker in New Jersey, you may be paying more than you owe.
New Jersey considers you a non-resident if you spent less than 183 days domiciled within the state. You must file a non-resident tax return, or NJ-1040NR, if you were single and earned, from all sources, more than $10,000, or married (filing a joint return) and earned more than $20,000. You would also file a non-resident return if you had state income taxes withheld and are claiming a refund, if you paid estimated state taxes and claim a refund, or if you are claiming a refundable New Jersey tax credit.
As for NY vs. NJ income tax rates, you'll do somewhat better in New Jersey than in New York. Tax rates start at just 1.4 percent in New Jersey, although this rate only applies to incomes under $10,000 as of 2020. But that same income would cost you 4.5 percent in New York.
New York State Returns
You are considered a New York resident and liable for New York taxes if you've resided at least 184 days of the year in the state during the tax year. You're also required to file a New York resident return IT-201 if your New York adjusted gross income is greater than the New York standard deduction for your filing status. As of tax year 2019 (the return you'd file in 2020), the standard deductions are:
- $3,100 for single filers who can be claimed as another taxpayer's dependent
- $8,000 for single filers who cannot be claimed as another taxpayer's dependent
- $8,000 for married filers who file separate returns
- $16,050 for those who are married and file a joint return and qualifying widow(ers)
- $11,200 for those who qualify as head of household
In addition, you can claim a credit of state taxes paid to another jurisdiction, such as New Jersey, on Form IT-112-R. You can't claim a credit for that amount on your New York tax return if you claim a refund of taxes withheld in New Jersey.
New York does not require that you attach a copy of your New Jersey return, but it does want an accounting of taxes withheld and refunds claimed in the other state.
NYC Personal Income Tax
You're also responsible for city income tax if you live in NYC and work in NJ. Tax withholding is required. The rate varies from 3.078 percent to a top marginal rate of 3.876 percent as of the 2019 tax year.
In addition to the state deductions and exemptions, you also may be eligible for the New York City household credit, which is subtracted directly from the city tax owed. The state also enforces special accrual rules if you change residence into or out of New York, and have accrued income from a different year for federal tax purposes.