I am an NJ resident and started working in NY this year. 80% of my income will come from this job. I believe I will end up paying higher taxes in NY.

I understand NY offers tax benefits on 529. If I take out an NY 529, would that help reduce my NY tax?

I am hoping that it will reduce the NY tax liability sufficiently enough that what I would pay is the NJ tax and not pay extra for NY.

The income earned in NY is reported on NY tax return and you pay the NY taxes.
You will also report this income on the NJ tax return. On the NJ tax return, you will claim credit for the taxes paid to NJ. So you will hardly pay any tax to NJ on the NY income.
Read: Your U.S. Tax Return: Working or Living in Two or More states (http://taxipay.blogspot.com/2008/06/working-in-two-or-more-states.html)

NY allows NY taxpayers to deduct 529 plan contributions up to $5K from their income. Unfortunately this applies only to NY residents, so to answer your question - no, as an NJ resident there would be no tax advantage for you to invest in NY's 529 plan.

This isn't to say that investing in a 529 is not a good idea - it may very well be an excellent vehicle to help you save for your children's college. However, you should look into NJ plans - given that 20% of your income is NJ-based it could help lower the NJ portion of your tax bill.

Except that the tax credit NJ will give for the NY taxes paid may almost completely offset any NJ taxes owed, which reduces the value of the 529 deduction (if any) on your NJ tax return.