Greetings.

I recently received a job offer in Manhattan. I currently live in NJ.

I'm pretty good at simple personal financial planning / budgeting, but I cannot seem to find on the internet definitive answers about any (if any) reciprocal tax agreements between NY and NJ.

I'm considering the job offer because of a higher salary (among other things). And I'm trying to figure out what my marginal increase in wages would be, after taking into consideration higher tax rates and tax consequences from holding residence in NJ and working in Manhattan.

Could anyone shed some light on what I should expect in terms of actual (and total) state tax liability?

Thanks!

D

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Originally Posted by nautis2000

Greetings.

I recently received a job offer in Manhattan. I currently live in NJ.

I'm pretty good at simple personal financial planning / budgeting, but I cannot seem to find on the internet definitive answers about any (if any) reciprocal tax agreements between NY and NJ.

I'm considering the job offer because of a higher salary (among other things). And I'm trying to figure out what my marginal increase in wages would be, after taking into consideration higher tax rates and tax consequences from holding residence in NJ and working in Manhattan.

Could anyone shed some light on what I should expect in terms of actual (and total) state tax liability?

Thanks!

D

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You would file in ny for earned income. Tax rate is higher than nj. When filing nj, you can offset a substantial part of the tax paid to ny.

Here's some info on New York's tax rates:
New York Income Tax Rates - New York & other state tax rates information. NY tax calculator.

And if you want to investigate further, here are the instructions for NY State non-resident income tax form:
http://www.tax.state.ny.us/pdf/2006/inc/it203i_2006.pdf

And here it is for NJ:
New Jersey Income Tax Rates - New Jersey & other state tax rates information. NJ tax calculator.

Basically as an NJ resident you will pay NY State income tax on the income you earn in NY. The tax rate used is determined by your total AGI, not just the NY portiion, so if you have other sources of non-NY income (spouse wages in NJ, capital gains, etc) you will pay taxes on your NY income at the higher rate.

Then when you do your NJ taxes you first calculate the taxes owed as if it was all earned in NJ, then you subtract out the amount you paid to NY as a credit.

Because the NY rates are generally higher than NJ's, you can expect a bigger tax bite when you take this job. However, it won't be as bad as if you actually moved to NY City, because residents of NYC pay an even higher rate (out of state commuters don't pay NYC income tax - only residents do).

Hope this helps.

What Ebaines says is generally accurate (though I am not sure about the tax rate being determined by ALL of the AGI). It would not surprise me if that were the case, but I suspect that a challenge of that provision in the federal court system would be upheld as being unconstitutional. It is quite a bit beyond my tax expertise, as it involves legal issues versus straight tax calculation.

In any event, for sure you will have to pay NY taxes on the wages you earn in NY. It is also likely that the resulting credit on your NJ return will completely offset your NJ tax liability (unless you have substantial income from non-NY state sources).

I definitely agree with Ebaines' citation of the substantially higher tax burden borne by NYC residents.

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Originally Posted by AtlantaTaxExpert

What Ebaines says is generally accurate (though I am not sure about the tax rate being determined by ALL of the AGI). It would not surprise me if that were the case, but I suspect that a challenge of that provision in the federal court system would be upheld as being unconstitutional.

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ATE: I checked the NY form for non-residents (IT-203), and indeed the way the way it works is you have to report all your income NY as you have it on your federal form, and also the portion of each income source that is attributable to NY sources. Then working with the federal amount you subtract out applicable deductions, and calculate your state tax on that amount ( I called it AGI, but that's not quite right - they actually call this amount "New York Taxable Income"), then you subtract out any applicable credits and you end up with what they call "Base Tax." Again, this has been calculated as if all your income is subject to NY tax. Then finally you multiply this Base tax by the percentage of your total income that is from NY sources to get your total NY Taxes due. For example, if you live in NJ and earn $100K on an NY salary, and your wife earns $60K in NJ, and you have $20K in dividends & interest, then you report your income to NY as $180K total, subtract whatever deductions you are due, calculate taxes on the remainder, and then multiply this amount at by 100/180. So in effect, you are paying at the tax bracket for someone who has made $180K.

I'm no lawyer, but off hand I don't see any legal issues with this. NY can decide how they want to set their tax brackets. They would argue that they're only taxing NY income, and it's not at any higher rate than the tax would be on their own residents.

On a side note, you may recall that up until a few years ago there was also an NYC tax on commuters. It applied to all commuters, i.e. NY residents as well as out of state. Well, the NY legislature passed a law exempting NY state residents from paying NYC non-resident income tax. They thought they were doing the NY commuters a favor. They didn't realize at the time that it would lead to the demise of NYC taxes on all non-residents, including commuters from NJ and CT. Seems that someone figured out it would be illegal to impose a commuter tax on only non-NY state residents. That was a huge and unintended whammy on NYC's finances.

Ebaines:

You make it Sound like the NY legislature was passing this law out of the kindness of their hearts.

That is hardly the case. Court action WAS in process challenging the constitutionality of NYC taxing people who did not live in NYC. I believe a lower federal court had already decided against NYC, but it was being appealed. The NY state legislature was reacting to the lower court decision when their legal advisors probably told them the appeal had virtually no chance.

I do NOT follow NYC and NY tax law very closely, so I am NOT 100% sure of my facts in this matter, but I may drop the NATP advisor on NY state tax law an email to get a definitive answer.

Thanks for the clarification, ATE. If you hear anything different regarding how the non-resident tax is calculated for NY please let us know. The only reason I follow it is because my daughter is an NJ resident, and last summer had a job in NYC. Since I do her taxes, I had to learn all the fun facts about NY's rules. I've also had the "pleasure" of wading through the non-resident issues for VT and DC. Why this girl always has to find a summer job in another state is beyond me!;)

Children do it just to test our patience.

They think it is their purpose in life! :-)

Thank you all for your responses. They definitely gave me a much better heads up as to what to expect. Now it's time to geekify myself and estimate my new tax liability.

;-)

Glad to help!

Ebaines:

Please PM me with an email address so I can forward the answer from the NY chapter of the NATP.