I work in NY but live in NJ Why do I have to pay NJ tax?
Q. I have been a resident owner in New Jersey for nine years. I work in New York. I am being sued by the New Jersey Division of Taxation for paying taxes from 2015 to 2019 in the amount of $11,000. I’ve already paid $3,000. Why do I have to pay taxes in New Jersey when I haven’t worked in New Jersey but in New York all this time?
A. Let’s explain how it works.
If you live in New Jersey, the state has the right to tax you on your worldwide income, regardless of where you work.
And if you work in New York, New York also has the right to tax you on your income from New York, said Bernie Kiely, a certified financial planner and certified public accountant at Kiely Capital Management in Morristown.
This might lead you to think that you will have to pay state income tax twice, but that is not the case.
“New Jersey will allow you to take a credit on your New Jersey tax return for taxes you paid to another state,” he said. “It eliminates double taxation.”
If you worked in New York, your employer issued you a W-2 form showing the salary you earned in New York and the state tax withheld, Kiely said, and you likely filed a tax return. income of non-residents in New York.
“When you filed your New Jersey tax return, you obviously didn’t include New York wages on it,” he said. “What you should have done was include your New York wages on your New Jersey tax return.”
He said you should also have completed Schedule NJ-COJ “Credit for Income or Wage Taxes Paid to Other Jurisdictions.”
“This calendar helps you calculate how much credit New Jersey is willing to give you on your taxes,” he said. “The number you get goes on line #43 of your NJ 1040, which lowers your taxes in New Jersey.”
So now New Jersey is looking for tax owed on unreported income.
But the state won’t pay attention to your credit for the tax you paid in New York, Kiely said. You will have to report it to the state.
“What you need to do is file an NJ-1040X form “New Jersey Amended Income Tax Return” for each year that New Jersey seeks additional tax.
Be sure to include Schedule NJ-COJ for each amended tax return,” he said. “You will probably find that you owe no additional tax in New Jersey.
You could also get a refund of the $3,000 you say you’ve already paid to the state.
Good luck, and if you’re unsure how to do this, it’s worth hiring a tax preparer to help you out.
Send your questions to [email protected].
Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Register for NJMoneyHelp.comit is weekly e-newsletter.