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.
TL;DR (Too Long; Didn't Read)
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%.