The New Jersey Division of Taxation has issued a reminder to residents who work remotely for out-of-state employers about the potential eligibility for a refundable Gross Income Tax (GIT) credit. This opportunity arises if they successfully challenge the taxation of income earned while working from home in New Jersey.
This tax credit was introduced under a 2023 law, addressing the impact of "convenience of employer" rules imposed by neighboring states on remote workers from New Jersey during the pandemic. The legislation allows taxpayers to claim a refundable credit equal to 50% of the taxes owed to New Jersey due to adjustments for tax years 2020 through 2023.
New Jersey State Treasurer Elizabeth Maher Muoio stated, “Remote work widely expanded during the pandemic, with many people who used to commute across state lines instead working from home. Treasury’s Division of Taxation is working diligently to ensure residents and tax preparers are aware of this refundable credit so that those who are eligible can take advantage of it.”
To qualify for this credit, taxpayers must meet several criteria: they must be New Jersey residents, pay income or wage tax to another state, apply for and be denied a refund from that state on income earned remotely in New Jersey, file an appeal against the other state's tax assessment in an out-of-state court or tribunal, obtain a favorable final judgment, and receive a refund as a result.
The refund necessitates an adjustment to New Jersey's credit for taxes paid elsewhere and may lead to additional taxes owed within the state. However, the law provides a credit equal to 50% of these additional taxes. As this credit is refundable, residents can benefit fully even if it reduces their New Jersey taxes below zero. So far, one taxpayer has received over $7,000 back from New Jersey after successfully challenging taxation by New York.
To access this credit, taxpayers need to submit an amended NJ-1040 form along with a copy of the final judgment from the other state's court or tribunal that confirms their case's resolution. Additionally, requests for waivers or abatements of interest and penalties will be considered individually by the Division of Taxation.
Further details are available on the Division's website.
