How to File Taxes If You Live in NJ and Work in PA

If you live in New Jersey and work in Pennsylvania, your taxes are simpler than most cross-border situations because the two states have a reciprocal income tax agreement: your wages are taxed only by New Jersey at the state level, provided you give your employer the right form. The catch is that Pennsylvania’s local taxes, and especially Philadelphia’s wage tax, are not covered by the agreement and still come out of your paycheck.

How the NJ-PA Reciprocal Agreement Works

Under the Reciprocal Personal Income Tax Agreement between New Jersey and Pennsylvania, compensation earned in Pennsylvania by a New Jersey resident is taxed only in New Jersey.¹ Pennsylvania’s flat 3.07% state income tax does not apply to your wages.² You pay New Jersey at its graduated rates instead.

The agreement covers compensation only: salaries, wages, tips, fees, commissions, bonuses, and other payments for services as an employee.¹ It does not cover self-employment income, rental income from Pennsylvania property, gains from selling Pennsylvania real estate, or gambling winnings at Pennsylvania venues. Those are still taxable by Pennsylvania.³

File PA Form REV-419 With Your Employer

The agreement does not apply automatically. You have to tell your Pennsylvania employer you are a New Jersey resident by completing PA Form REV-419, the Employee’s Nonwithholding Application Certificate, and turning it in to payroll.⁴ Once the form is on file, your employer stops withholding Pennsylvania state income tax and starts withholding New Jersey Gross Income Tax.

You need to file a new REV-419 every year. Multiple Pennsylvania employers means a separate form for each one.⁴ Set a calendar reminder for January so it does not slip.

What Happens If You Skip the REV-419

Without the form, your employer withholds Pennsylvania’s 3.07% state tax as if you were a taxable non-resident. That money goes to the wrong state, and New Jersey will not give you a credit for it, because the reciprocal agreement means Pennsylvania should never have taken it in the first place.

To recover it, file a Pennsylvania Non-Resident Income Tax Return (Form PA-40) reporting zero taxable Pennsylvania wages and request a refund. You will still owe New Jersey the tax that should have been withheld all year, which can create a real cash-flow squeeze at filing time.

The Philadelphia Wage Tax

If your job is in Philadelphia, the city imposes its own wage tax on everyone earning income within city limits, regardless of where they live. The non-resident rate is 3.43%.⁵ The NJ-PA reciprocal agreement does not touch Philadelphia’s wage tax or any other Pennsylvania municipal tax.⁶

Philadelphia has no reciprocal agreements with any state or municipality.⁷ Your employer withholds the wage tax from every paycheck, and there is no exemption form. New Jersey does let you credit that Philadelphia tax against your NJ liability, which softens the blow considerably.

Local Earned Income Tax and Local Services Tax Outside Philadelphia

Most Pennsylvania municipalities levy a local Earned Income Tax (EIT) on people who work within their borders. Your employer withholds this based on the non-resident rate for your worksite’s Political Subdivision (PSD) code.⁸ Non-resident EIT rates are commonly around 1%, though the exact rate depends on the municipality.

Many municipalities also impose a Local Services Tax capped at $52 per year, withheld in small increments from each paycheck.⁹ Neither the EIT nor the LST is covered by the reciprocal agreement.

Claiming the NJ Credit for PA Local Taxes

New Jersey lets you claim a credit on your resident return for local income and wage taxes paid to Pennsylvania municipalities, including Philadelphia.⁶ Complete Schedule NJ-COJ and attach it to your NJ-1040. A few limits to know:

The credit cannot exceed the New Jersey tax you would have owed on that same income. It reduces your NJ bill but does not generate a refund by itself.
Pennsylvania state income tax withheld in error (because you skipped the REV-419) does not qualify. You have to get that back from Pennsylvania directly.
The Philadelphia wage tax does qualify, along with other Pennsylvania municipal income taxes paid on the wages you report to New Jersey.

If you filed a Philadelphia petition for a wage tax refund during the year, subtract that refund from the total Philadelphia wage tax paid before you calculate the NJ-COJ credit.

Filing Your New Jersey Return

As a New Jersey resident, report all of your income on the NJ-1040, including wages from your Pennsylvania job. If your employer withheld New Jersey tax after receiving the REV-419, your W-2 will show NJ withholdings that apply directly against your NJ liability.¹⁰ Claim the credit for Pennsylvania local taxes on Schedule NJ-COJ and carry it to Line 44 of the NJ-1040.

If you expect to owe more than $400 in New Jersey income tax after withholdings and credits, you have to make quarterly estimated payments using Form NJ-1040-ES. Missing them can result in interest charges on the underpayment.¹¹ This most often catches people whose employer withheld PA state tax instead of NJ tax, or whose NJ-COJ credit does not fully offset the local taxes chipping away at their NJ liability.

When You Still Need to File a Pennsylvania Return

Two situations still call for a PA-40 Non-Resident Income Tax Return.

The first is the refund scenario. If your employer withheld Pennsylvania state income tax because the REV-419 was not on file, file a PA-40 reporting zero taxable Pennsylvania wages to get a full refund.³

The second is Pennsylvania-sourced income outside the reciprocal agreement: net income from a business you operate in Pennsylvania, rental income from Pennsylvania property, gains from selling Pennsylvania real estate, or gambling winnings from Pennsylvania venues (PA Lottery prizes are excluded, since Pennsylvania does not tax those for non-residents).³ Report those on the PA-40 regardless of how your wage withholding is set up.

Working From Home in New Jersey

If your Pennsylvania employer lets you work from home in New Jersey some or all of the time, the reciprocal agreement still governs your wages. New Jersey taxes the compensation, and the REV-419 keeps your withholding on the right side of the border. Remote work from New Jersey does not create an added Pennsylvania tax on covered wages.

New Jersey’s Convenience of the Employer sourcing rule, effective January 1, 2023, does not apply to Pennsylvania residents working for NJ employers because of the reciprocal agreement, and by the same logic it does not disturb the NJ-to-PA commuter relationship.¹²

One thing to watch: if you work in Philadelphia and shift to full-time remote work from your New Jersey home, you may no longer owe the Philadelphia wage tax, because you are no longer earning income within city limits. Whether payroll adjusts withholding depends on your employer’s practices and how they classify your work location. Raise it with payroll if your work location changes.

1
NJ Division of Taxation. PA/NJ Reciprocal Income Tax Agreement
2
Commonwealth of Pennsylvania. Personal Income Tax
3
Commonwealth of Pennsylvania. Nonresidents and Part-Year Residents
4
Pennsylvania Department of Revenue. Instructions for REV-419 Employee’s Nonwithholding Application Certificate
5
City of Philadelphia. Wage Tax (Employers)
6
NJ Division of Taxation. Credit for Taxes Paid to Other Jurisdictions
7
City of Philadelphia. Earnings Tax (Employees)
8
PA Department of Community & Economic Development. Local Income Tax Requirements for Employers
9
PA Department of Community & Economic Development. Local Services Tax (LST)
10
New Jersey Division of Taxation. NJ-1040 Resident Income Tax Return
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NJ Division of Taxation. Income Tax – Estimated Payments
12
State of NJ – Department of the Treasury – Division of Taxation. Convenience of the Employer Sourcing Rule Enacted for Gross Income Tax FAQ