If I live in NJ and work in NY how many allowances on my NJ W4 should I file? My understanding is that my NY state income taxes will offset any NJ tax liability when I file my NJ state income tax return due to slighlty higher rates. If that is the case then do I need to claim a ton of allowances on my NJ W4? I only claim 1 or 2 allowances on my NJ w4 wouldn't I be over withholding since I should owe $0 nj state income tax?

In case it matters my wife and I both work in NY with total W4 income of about $200k and we do not have substantial other income - some investment but nothing that should make a huge tax liability

If the salary earned in NY state is your ONLY income, have your employer NOT withholding ASNY NJ taxes, because the offset from the NY state tax credit will completely begate any New Jersey taxes you may owe. This is because NY state tax rates are higher than NJ.