NJ readies for battle with NY over work-from-home income taxes
TRENTON – Bipartisan legislation endorsed by Gov. Phil Murphy would take three steps toward addressing the taxation of New Jerseyans who work from home for New York-based companies but continue to pay income taxes to the Empire State.
New Jersey provides tax credits to residents who pay taxes to other jurisdictions, which is costing the state budget more than $4 billion in foregone revenue a year.
The proposed changes could boost state revenues, provide tax relief to employees of New York companies and encourage more jobs in New Jersey. They come at the same time Murphy and other New Jersey officials are fighting a congestion pricing toll plan on drivers entering much of Manhattan.
“This is an issue that warrants no debate; on both sides of the aisle, we can all agree that we must protect our residents from unfair and inordinate taxation from other states,” Murphy said.
“We’ve been working hard to find solutions so that New Jersey residents, many of whom have been working from home since the pandemic began, won’t face an unfair disadvantage financially,” said Deputy State Treasurer Aaron Binder.
New York’s “convenience of the employer” rule says that if an employee works from home for their convenience, rather than a requirement of their employer, those days are treated as days worked in their office.
That became a much bigger issue during the pandemic. At least five other states have the same interpretation as New York. Among them is Pennsylvania, but New Jersey and Pennsylvania have a reciprocal tax agreement in which people pay income taxes where they live, not work.
New Hampshire sought to challenge the Massachusetts provision in 2020, but the Supreme Court declined to hear the case. New Jersey filed a brief in support of New Hampshire’s position.
New Jersey is now proposing to adopt its own “convenience of the employer” rule, so it could tax employees of New Jersey companies choosing to work from home in other states. It would only apply to people living in states that have such a rule.
The legislative proposal would also award tax credits to incentivize New Jerseyans to file legal actions against other states that collect taxes from them for services they perform while physically located in New Jersey. The credit would amount to 50% of whatever tax refund they receive as a result of their tax appeal.
Also, the proposal includes a $10 million program, run by the Economic Development Authority, providing grants to out-of-state businesses with at least 25 full-time workers that assign their employees to New Jersey locations, incentivizing job growth and capital investments in the state.
“These proposals will help stop, once and for all, the unjust taxation of New Jersey taxpayers while further boosting our fiscal health and burgeoning economy,” said Sen. Jon Bramnick, R-Union.
“Recent actions by neighboring states to add exorbitant congestion fees, on top of what New Jerseyans already pay in other states' taxes, makes the need for this initiative indisputable,” said Sen. Joseph Lagana, D-Bergen.
“This program allows for New Jersey workers to maintain the benefits of living and working in New Jersey, without subsidizing the unmet needs of other states,” said Assemblywoman Lisa Swain, D-Bergen.
Senate Minority Leader Steve Oroho, R-Sussex, who has been pushing for two years for Murphy to address New York’s taxation of stay-at-home workers in New Jersey during the pandemic, said the legislation is welcome but overdue.
“I can’t imagine why it took so long, but I’m glad he finally took our advice,” Oroho said.
“Had the governor listened sooner, it’s possible that telecommuters from New Jersey could have saved thousands of dollars or more in unnecessary income tax payments to New York. Our state could have gained billions in new tax revenues that could have been used to prevent school funding cuts and support greater property tax relief,” he said. “While we can never get those two years of inaction back, I’m glad he finally felt the pressure to do something.”