New Jersey has no local income tax on residents’ wages. None of the state’s 564 municipalities imposes a city or township income tax that you file or that gets withheld from your paycheck. Your personal income tax obligation to New Jersey is handled in one place: the annual NJ-1040 filed with the state Division of Taxation. The complication, if you have one, almost always comes from working across a state line, where another jurisdiction’s local tax can reach your wages even though your hometown’s cannot.
No New Jersey City Taxes Your Wages
State law channels municipal revenue through property taxes and state aid rather than taxes on individual earnings. Where a municipality taxes earnings at all, it is restricted to an employer-side payroll tax, and N.J.S.A. 40:48C-16 explicitly prohibits an employer from deducting that tax from an employee’s pay.1Justia. New Jersey Revised Statutes Section 40-48C-16 – Ordinance; Contents There is no local W-2 box, no local withholding line, and no town hall income tax office.
Two cities, Newark and Jersey City, do levy a 1% payroll tax, but it is paid by the employer on its total payroll and cannot be passed through to workers.2City of Newark. Payroll Tax Booklet 20253City of Jersey City. Payroll Tax As an employee living or working in either city, you have nothing to file and nothing withheld on account of it. (Self-employed people operating in Newark are their own employer and can owe the city’s payroll tax directly; if that describes you, check Newark’s filing rules.)
So if you live in New Jersey and also work in New Jersey, your local income tax picture is finished. The rest of this article is for people whose work crosses a border.
When You Commute to Philadelphia
New Jersey residents who work in Philadelphia owe the Philadelphia non-resident wage tax on compensation earned within the city. The current non-resident rate is 3.43%, and a Philadelphia employer will normally withhold it from each paycheck.4City of Philadelphia. Wage Tax (Employers)
A detail that catches many commuters by surprise: the New Jersey–Pennsylvania reciprocal income tax agreement, which keeps Pennsylvania from taxing your wages at the state level, does not reach Philadelphia’s wage tax or any other Pennsylvania municipal tax. Reciprocity exempts you from Pennsylvania state income tax; the Philadelphia local tax is still yours to pay.5NJ Division of Taxation. Credit for Taxes Paid to Other Jurisdictions
When You Commute to New York or Yonkers
If you work in New York, you owe New York State income tax on the wages you earn there. You do not owe New York City’s personal income tax, because that tax applies only to New York City residents, not to nonresidents whose office happens to be in Manhattan.6NY Department of Taxation and Finance. Frequently Asked Questions About Filing Requirements, Residency, and Telecommuting Yonkers is the exception on the local side: income sourced to Yonkers can trigger the Yonkers nonresident earnings tax.
Remote Work for an Out-of-State Employer
Working from your New Jersey home does not automatically remove other states from the picture. New York applies a convenience of the employer test: if you work remotely for your own convenience rather than because your employer requires an out-of-state workplace, New York treats your wages as New York-source income and taxes them.7NY Department of Taxation and Finance. New York Tax Treatment of Nonresidents and Part-Year Residents
New Jersey enacted its own convenience of the employer sourcing rule under P.L. 2023, c.125 and offers credits to residents facing competing claims from states that apply such rules.8NJ Division of Taxation. Convenience of the Employer Sourcing Rule If your paycheck comes from a New York employer and you work remotely from New Jersey, read both states’ rules before you file.
Claiming a Credit on Your NJ-1040
New Jersey gives you a credit against your state tax for income and wage taxes you pay to other jurisdictions, including local taxes like the Philadelphia wage tax. You claim it on Schedule NJ-COJ, filed with your NJ-1040. If you paid tax to more than one outside jurisdiction, you may need a separate Schedule NJ-COJ for each.5NJ Division of Taxation. Credit for Taxes Paid to Other Jurisdictions
The credit is limited to taxes based on income. If you are a sole proprietor or partner subject to Philadelphia’s Business Income and Receipts Tax, only the portion based on net income qualifies; the gross receipts portion does not.9NJ Division of Taxation. Credit for Income Tax Paid to Other Jurisdictions (Business/Nonwage Income)
Keep copies of any returns you file with other jurisdictions to back up the credit. If you did not file a return with the taxing jurisdiction, a W-2 showing the local wage tax paid and naming the jurisdiction is acceptable documentation.10NJ Division of Taxation. 2025 Form NJ-1040 Instructions