While living in Manhattan has an unmistakable cachet, joining the bridge and tunnel crowd has some real benefits, as well. Moving out of Manhattan gives you the opportunity to have more space to live and enjoy lower rents. If you move west into New Jersey, you'll also benefit from significantly lower tax rates. Both of these areas are among the most expensive in the country, but New Jersey has distinct advantages in the tax department.
Not only does New Jersey have a lower income tax rate, but it also features a lower sales tax compared to New York City.
New York City Tax
New York City levies a city tax on its residents in addition to state and federal income taxes. The New York City tax is at least 2.907 percent and goes up to 3.648 percent for a single person's income over $50,000 and 3.876 percent on incomes over $500,000. If you live in New Jersey, you don't pay New York City income tax, so you're keeping about 3 percent more of your paycheck. Then again, you're also taking the risk that the New York City commuter tax, abolished in 1999, returns.
Understanding State Tax
While both New York and New Jersey have relatively high income taxes, New Jersey's lowest income tax rate is 1.4 percent while New York's is 4 percent. The lowest tax bracket is also wider in New Jersey than in the Empire State, as of 2018. Furthermore, while you'll have to file taxes in both states if you commute, New Jersey lets you take the tax you've already paid as a dollar-for-dollar credit against your New Jersey tax liability.
Exploring Sales Tax
Shopping is less expensive in New Jersey. Every borough of New York City has an 8.875 percent sales tax. New Jersey's statewide retail sales tax is 6.625 percent -- already less than New York's. Prior to 2017, the sales tax rates was 7 percent. However, areas of New Jersey that are in designated enterprise zones, like much of Jersey City, have a sales tax of just 3.5 percent.
Evaluating Commute Deductions
Commuting from New Jersey to New York isn't inexpensive. Not only will you spend a significant amount of money, but you could also lose two or more hours per day. Once way to help mitigate your loss is to shelter your commuting expense from taxes. Some employers offer a program that lets you take money out of your paycheck on a pre-tax basis to pay for your commuting expenses, like bus and train passes.
- The New York State Department of Taxation and Finance: New York City Tax Rate Schedule
- State of New Jersey Department of the Treasury: NJ Income Tax - Credit for Taxes Paid to Other Jurisdictions
- NJ Division of Taxation: Gross Income Tax
- NJ Divsion of Taxation: Effective January 1, 2018, the New Jersey Sales and Use Tax Rate is 6.625%.
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- New Jersey Tax Rate Schedules 2018. "New Jersey Tax Rate Schedules 2018." Accessed March 12, 2020.
- New York State Department of Taxation and Finance. "Instructions for Form IT-201 Full-Year Resident Income Tax Return," Page 57. Accessed March 11, 2020.
- New Jersey Division of Taxation. "Effective January 1, 2018, the New Jersey Sales and Use Tax Rate is 6.625%." Accessed March 11, 2020.
- NYC Department of Finance. "New York State Sales and Use Tax." Accessed March 11, 2020.
- New Jersey Division of Taxation. "Urban Enterprise Zones (UEZs) Overview," Select "What are the currently active UEZs and their expiration dates?" Accessed March 11, 2020.
- National Center for Education Statistics. "Table 1. Public high school 4-year adjusted cohort graduation rate (ACGR), by race/ethnicity and selected demographic characteristics for the United States, the 50 states, and the District of Columbia: School year 2015–16." Accessed March 12, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.