Do you pay income tax to your state of residence or employment?

Question

If you are a NJ resident and work in New York City, should there be money taken out of your paycheck going to NY?

Answer 1

you would need to file in both states

you would file a NY non-resident form to get the tax back that you have paid in and you would file a NJ resident form to pay the tax to your home state.

Answer 2

The earlier responses do not seem to have been done by local experts here in NY/NJ.  Some states have "reciprocal agreements" which allow you to get a refund from the state where you work, but that is not the case here.  Instead...

You will have NY (state and city) taxes withheld by your employer, but not NJ.  When it comes time to pay your taxes in April, you will have to make two filings.  A nonresident NY return is needed to calculate and pay NY nonresident taxes (on your NY employment earnings).  Then, a resident NJ return is needed to calculate NJ resident taxes (on your total earnings, from sources inside and outside NJ).  The key point, though, is that you will get a credit on your resident NJ return for the nonresident NY taxes you paid.  Thus, in the end, you will not have to pay any net NJ taxes on your NY employment earnings.

Answer 3

Your employer will take taxes out for the state you work in. However since you don't live there, you don't have to pay taxes there. You DO have to pay taxes in the state where you live.

When you do your taxes at the end of the year, you will have to submit a form to the state where you work to have all of the taxes you paid refunded. Then you have to file taxes with the state where you live and pay a year's worth of taxes in one lump sum. Try to file with the state where you work as soon as possible in January/February, and (hopefully) you will get the refund before your taxes to your state of residence are due on April 15. Keep in mind that there may be city and/or county taxes that will be refunded and/or paid.

Check with a good accountant to see if the tax base is higher where you live than where you work. If it is, then you will probably want to start a savings account or pre-pay your state taxes to make sure you have the extra money when tax time comes around.

I don't live in that area, but I've heard that a lot of people on the east coast live in one state and work in another, so there shouldn't be any shortage of accountants who are familiar with how to do this. Even if you're good at doing your own taxes, I'd still pay someone to do it the first year, then refer back to those forms the following year if you want to try your hand at doing it yourself.

My husband and I looked into living in Wisconsin, but we both worked in Minneapolis/St. Paul. Because it's right over the border, we worked with a few people who did this, so we are vaguely familiar with how it works.