If you are a New Jersey resident with income from sources outside New Jersey, you may be eligible for a credit on your New Jersey tax return. You may qualify for a credit if you paid income or wage tax on the same income in the same year to both New Jersey and to another jurisdiction outside New Jersey. You cannot claim a credit for income tax paid to the federal government, Canada, Puerto Rico, or any other foreign country or territory.
New Jersey requires you to pay tax on all of your income, regardless of where it is earned. The credit reduces your New Jersey Income Tax liability so that you don't pay taxes twice on the same income. This is not a refund of the taxes you paid to another state or city. Your credit cannot be more than the amount you would have paid if you earned the income in New Jersey.
How to Apply for the Credit
To apply for the credit, complete a New Jersey Schedule NJ-COJ (Schedule A for Tax Years 2017 and prior) and include it with your New Jersey return. If you are claiming a credit for income or wage taxes paid to more than one jurisdiction, you may have to complete a Schedule NJ-COJ for each jurisdiction. You must also complete a separate Schedule NJ-COJ for each tax imposed by a jurisdiction.
Enter on your New Jersey return the total amount of credit from your Schedule NJ-COJ(s). You must also enter on the return a two-digit jurisdiction code for the jurisdiction(s) in which you paid tax.
You are not required to provide a copy of the income tax return(s) filed with the other jurisdiction(s) with your New Jersey return. This means you can claim a credit for taxes paid to another jurisdiction and file electronically as long as you meet the other eligibility requirements. However, you should keep complete copies of any returns filed with other jurisdiction(s) for your records in case your New Jersey return is audited.
NJ/PA Reciprocal Agreement
The Reciprocal Personal Income Tax Agreement between Pennsylvania and New Jersey means compensation paid to New Jersey residents employed in Pennsylvania is not subject to Pennsylvania income tax. Therefore, you cannot claim a credit on Schedule NJ-COJ for taxes paid to Pennsylvania on those earnings. New Jersey residents can claim a credit for taxes paid to Pennsylvania on other types of income (for example, business income) that are taxable in both states by completing Schedule NJ-COJ.
The New Jersey/Pennsylvania Reciprocal Agreement does not apply to income or wage tax imposed and collected by the City of Philadelphia or any other municipality in Pennsylvania. That means a New Jersey resident who works in Philadelphia and pays city wage taxes can claim a credit for the taxes paid to Philadelphia.
Other Types of Income
If you paid income taxes or wage taxes to another jurisdiction on S corporation income, and that income is also taxed in New Jersey in the same year, you may be eligible for a credit.
For more information on the treatment of S corporation income and distributions qualifying for a credit, see Tax Topic Bulletin GIT-9S , Income From S Corporations.
For more information on how to determine your credit, see Tax Topic Bulletins GIT-3W , Credit for Taxes Paid to Other Jurisdictions (Wage Income), or GIT-3B , Credit for Taxes Paid to Other Jurisdictions (Business/Nonwage Income).