Reciprocal Agreement – NJ/PA

Governor Christie of New Jersey has eliminated the reciprocal agreement between the states.  What this means is that the Pennsylvania residents who work in New Jersey will no longer have Pennsylvania income tax withheld from their paychecks, unless it is an additional courtesy by their employers.

Effective in 2017, Pennsylvania residents working in New Jersey will need to pay any Pennsylvania income taxes individually, either on a quarterly basis or at year end.

There is much talk of this being purely a politically-motivated change.   Payroll practitioners will not discuss those issues, but have to gear up for a change in their withholding routines for 2017.  New withholding forms will be required from the over 40,000 Pennsylvania residents working in New Jersey.

The income tax rates differ between the two states; a flat income tax of 3.07% is now in force in Pennsylvania, while a graduated tax ranging up to almost 9% is in effect in New Jersey.  The reciprocal agreement dates back to 1977.