I live in PA and work in Jersey. Why is tax being taken out for the township I live in? This is the first year this has been done.

If you work (or work and live) in two different states, you will file tax return in both the states. One state is your tax home. In the state that is not your tax home (that is Jersey), report income you earned while in that state.

In the state that is your tax home (that is PA), report your worldwide income for full year. Also in this state claim credit for the taxes paid to the other state. Your U.S. Tax Return: Working or Living in Two or More states

For the township tax, most local taxes are assessed against those who LIVE in the locality, though some taxes can be assessed against those who work there as well.

Apparently, your township taxes its residents, not its workers.

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Originally Posted by MukatA

If you work (or work and live) in two different states, you will file tax return in both the states. One state is your tax home. In the state that is not your tax home (that is Jersey), report income you earned while in that state.

In the state that is your tax home (that is PA), report your worldwide income for full year. Also in this state claim credit for the taxes paid to the other state. Your U.S. Tax Return: Working or Living in Two or More states

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This is not quite right for the situation of someone who lives in PA and works in NJ. The states have reciprocal agreements that allow PA resident to have PA income tax withheld even though they work in NJ. This allows the worker to file only in PA and not have to file in NJ. To make this work you have to submit form NJ-165 to your NJ-based employer. See:

NJ Division of Taxation - Income Tax - PA/NJ Reciprocal Income Tax Agreement

I agree with ebaines' post regarding the STATE income tax issues.

However, it seems to me that the OP was asking about the township taxes.