Compensation paid to Pennsylvania residents employed in New Jersey is not subject to New Jersey Income Tax under the terms of the Reciprocal Personal Income Tax Agreement between the states.
Similarly, New Jersey residents are not subject to Pennsylvania income tax either. Compensation means salaries, wages, tips, fees, commissions, bonuses, and other payments received for services rendered as an employee.
The Reciprocal Agreement covers compensation only. If you are self-employed or receive other income (ie., gain from the sale of property) that is taxable in both states, you must file a New Jersey nonresident return and report the income received.
If you are a Pennsylvania resident and New Jersey Income Tax was withheld from your wages, you must file a New Jersey nonresident return to get a refund. To stop the withholding of New Jersey Income Tax, complete an Employee's Certificate of Nonresidence in New Jersey (Form NJ-165) and give it to your employer.
You must enclose a signed statement with your New Jersey nonresident returns indicating you are a resident of the Commonwealth of Pennsylvania.
Likewise, if you are a New Jersey resident and your employer withheld Pennsylvania income tax from wages, you must file a Pennsylvania return to get a refund. To stop the withholding of Pennsylvania income tax, complete Form REV-419EX, Employee’s Nonwithholding Application Certificate, and give it to your employer. More information is available on the Pennsylvania Department of Revenue website or by calling 1-717-787-8201.