If you live in New York City and started a daily westbound commute across the Hudson River, your tax life just got a little more complicated. Both New York and New Jersey levy state income tax, and both states may require you to file an annual tax return. Fortunately, taxes paid in one jurisdiction can be offset as tax credits in the other, thus preventing the dreaded double taxation. For federal taxes, the tax rate remains the same no matter where you live, but you do need to declare a current address.
Federal Tax Returns
The federal income tax rates enforced by the Internal Revenue Service are in effect throughout the United States, and for all individuals declaring income from a U.S. source. The annual return must have your current address as of the end of the tax year. If you moved to New York in November, for example, but lived most of the year in New Jersey, you would enter your New York address on the return. If you earn income in the US but move out of the country, you still owe U.S. income tax unless you pass the 330-day test.
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New Jersey Non-Resident Returns
The state of New Jersey requires that employers withhold state income taxes from employee wages, no matter where those employees may reside. Therefore, as a resident of New York City and a worker in New Jersey, you may be paying more than you owe. New Jersey considers you a non-resident if you spent less than 183 days domiciled within the state. You must file a non-resident tax return, or NJ-1040NR, if you were single and earned, from all sources, more than $10,000, or married (filing a joint return) and earned more than $20,000. You would also file a non-resident return if you had state income taxes withheld and are claiming a refund, if you paid estimated state taxes and claim a refund, or if you are claiming a refundable New Jersey tax credit.
New York State Returns
You are considered a New York resident and liable for New York taxes if you've resided at least 184 days of the year in the state during the tax year. You're also required to file a New York resident return IT-201 if you earned enough to file a federal return, or more than $4,000. In addition, you can claim a credit of state taxes paid to another jurisdiction, such as New Jersey, on Form IT-112-R. If you claim a refund of taxes withheld in New Jersey, you can't claim a credit for that amount on your New York tax return. New York does not require that you attach a copy of your New Jersey return, but does want an accounting of taxes withheld and refunds claimed in the other state.
NYC Personal Income Tax
As a resident of the Big Apple, you're also responsible for city income tax. As of publication, the rate varies from 2.907 percent to a top marginal rate of 3.876 percent on income over $500,000. The tax appears on line 47 of the state return, where you report the amount you owe. In addition to the state deductions and exemptions, you also may be eligible for the New York City household credit, which shows up on line 48 of the IT-201 and is subtracted directly from the city tax owed. The state also enforces special accrual rules if you change residence into or out of New York, and have accrued income from a different year for federal tax purposes.