The Pennsylvania Department of Revenue is responsible for collecting income taxes from residents and nonresidents who earn income within the commonwealth. Pennsylvania has special reciprocal agreements with several states, including its bordering neighbor New Jersey. Through its reciprocity agreement with New Jersey, Pennsylvania residents earning income in New Jersey must pay income taxes on their employment earnings to the New Jersey Division of Taxation.
Pennsylvania Tax Law
The Pennsylvania Department of Revenue requires all residents to file annual tax returns. The commonwealth requires that all residents with at least $33 of annual Pennsylvania taxable income or losses from Pennsylvania income file annual tax returns. The general rule for Pennsylvania residents is that they must file individual tax returns with the Pennsylvania Department of Revenue and may have to file individual tax returns with the state in which they work.
Read More: Does Pennsylvania Charge Income Tax on Early IRA Withdrawal?
Reciprocal Agreement With New Jersey
The "Reciprocal Personal Income Tax Agreement Between the State of New Jersey and the Commonwealth of Pennsylvania" allows Pennsylvanians to pay income taxes earned on their wages directly to New Jersey. Pennsylvanians can receive credits for their income tax payments on their income tax returns. By receiving a tax credit, taxpayers can avoid paying double taxes on the same income. Pennsylvanians must submit signed copies of their New Jersey tax returns and complete "PA Schedules G-S," "G-L" or "G-R" to receive tax credits for income taxes paid to New Jersey. New Jersey employers will withhold their income taxes to pay the New Jersey Division of Taxation for their wages.
Exceptions and Limitations
Pennsylvanians who had their Pennsylvania incomes taxes withheld by New Jersey employers but are also considered residents for New Jersey income tax purposes are ineligible for income credits, since they would owe income to both states. These taxpayers are subject to income taxes as Pennsylvania residents and nonresidents in New Jersey. Most commonly, these taxpayers are those who are dual residents and live in both states for some part of the tax year. Taxpayers who live in Pennsylvania but own rental properties in New Jersey are also subject to income taxes in both states, since they would owe rental property income taxes to New Jersey.
Other Reciprocity Agreements
Pennsylvania also has tax reciprocity agreements with Maryland, Virginia, Ohio, West Virginia and Indiana. Pennsylvanians who live only in Pennsylvania for the entire tax year but pay income taxes to other states would qualify for the Pennsylvania resident tax credits.
Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.
- New Jersey Department of the Treasury: NJ Income Tax – Pennsylvania/New Jersey Reciprocal Income Tax Agreement
- Pennsylvania Department of Revenue: 2010 PA Personal Income Tax Return Instructions (PA-40 Instructions)
- Pennsylvania Department of Revenue: Personal Income Tax Brochure 2010
- Pennsylvania Department of Revenue. "Personal Income Tax." Accessed Aug. 13, 2020.
- Pennsylvania Department of Revenue. "Deductions Allowed For Pennsylvania Tax Purposes." Accessed Aug. 13, 2020.
- Pennsylvania Department of Revenue. "PA Schedule UE—Unreimbursed Business Expenses." Accessed Aug. 13, 2020.
- PA529. "Frequently Asked Questions: What Are the Income Tax Benefits of Investing in a PA 529 Account?" Accessed Aug. 13, 2020.
- Pennsylvania Department of Revenue. "Tax Forgiveness." Accessed Aug. 13, 2020.
- Pennsylvania Department of Revenue. "Brief Overview and Filing Requirements." Accessed Aug. 13, 2020.
- Pennsylvania Department of Revenue. "Personal Income Tax Filing Options." Accessed Aug. 13, 2020.
- Pennsylvania Department of Revenue. "COVID-19 Information." Accessed Aug. 13, 2020.
Jill Stimson has worked in various property management positions in Maryland and Delaware. Stimson worked for the top three property management companies in the commercial industry and focuses her career on property building logistics and tenant relationships. She holds a Juris Doctor and a Bachelor of Science in psychology.