New Jersey residents working remotely for out-of-state employers may qualify for a refundable income tax credit. This applies to those who have won legal challenges against other states taxing their income while they were physically in New Jersey. The credit, established under a 2023 law supported by NJBIA, is available for tax years 2020-2023.
The legislation addresses "convenience of employer" rules used by states like New York, which taxed remote workers based on the employer's location rather than where the work was performed. It allows eligible taxpayers to claim a refundable credit equal to 50% of the taxes owed to New Jersey due to this readjustment.
"Remote work widely expanded during the pandemic, with many people who used to commute across state lines, instead working from home," stated New Jersey State Treasurer Elizabeth Maher Muoio. "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 the credit, taxpayers must meet several criteria: they must be New Jersey residents paying income or wage tax to another state; apply for and be denied a refund from that state; file an appeal and obtain a favorable final judgment from an out-of-state tax court or tribunal; and receive a refund as a result.
Receiving this refund necessitates adjusting New Jersey's credit for taxes paid elsewhere, likely resulting in additional taxes owed to New Jersey. However, the law provides a 50% credit on these additional taxes. Since it is refundable, residents can receive its full value even if it reduces their New Jersey taxes below zero.
For instance, one taxpayer received over $7,000 back from New Jersey after successfully challenging taxation by New York. To obtain the credit, taxpayers need to submit documentation including the final judgment from the other state's tax court along with an amended NJ-1040 form.
Taxpayers can also request waivers or abatements of interest and penalties on a case-by-case basis through the Division of Taxation. Detailed information is available on their website.
This legislation does not affect Pennsylvania residents working in New Jersey due to an existing Reciprocal Agreement nor Connecticut residents due to differing rules regarding convenience sourcing.
The Gross Income Tax Credit applies only when taxpayers win legal challenges against another state's imposition of convenience rules while earning income physically in New Jersey during specified years.
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