DIRECT ANSWER
What to know first
A full-year New Jersey resident generally reports income from all sources on Form NJ-1040. Wages sourced to New York can also require a New York nonresident return, Form IT-203. New Jersey may allow a Schedule NJ-COJ credit for income or wage tax paid to New York on the same income in the same year, limited to the New Jersey tax attributable to that income. Remote workdays are not automatically outside New York: when a nonresident's primary office is in New York, New York generally treats telecommuting days as New York workdays unless the employer established a bona fide employer office at the remote location.
Prepare the New York nonresident and New Jersey resident returns together
New York nonresidents are generally taxed on New York-source income, including wages for services performed in New York. The nonresident return begins with federal information and allocates the New York-source amount under the current IT-203 instructions.
New Jersey residents report income from all sources. Preparing the returns together makes it possible to reconcile the income taxed by New York, the New York tax actually due, the New Jersey income category, and the resident-credit limitation instead of treating W-2 withholding as the final tax.
Review remote workdays under New York's telecommuting rule
New York states that when a nonresident's assigned or primary office is in New York, days telecommuting outside the state are treated as New York workdays unless the employer established a bona fide employer office at the telecommuting location. A personal decision to work from a New Jersey home does not by itself establish that office.
Preserve the employer's assigned-office record, written remote-work policy, work calendar, travel records, job duties, and facts supporting employer necessity or a bona fide employer office. Do not reduce New York wages solely by counting home days without applying the current instructions.
Calculate the New Jersey credit from tax due, not withholding alone
Schedule NJ-COJ can reduce New Jersey tax when the same income is taxed by New Jersey and another jurisdiction in the same year. The credit is limited and cannot exceed the New Jersey tax attributable to that income. It is not a refund of all New York tax paid.
New Jersey specifically distinguishes New York tax due on Form IT-203 from New York tax withheld on Form W-2. Keep the complete New York return and supporting records because New Jersey can request them when reviewing the credit.
Reconcile both state lines on Form W-2
Review W-2 boxes 15 through 17 for each state, but do not assume the state-wage entries are correct or identical. Tie the form to pay statements, employer work-location records, residence dates, and the New York allocation.
If withholding is materially different from the expected state liabilities, consider updated employee withholding forms or estimated payments for the current year. The filing result depends on compensation, deductions, filing status, credits, other income, and local taxes; living in New Jersey does not create New York City resident tax.
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AUTHOR
Stefano Tavella, CPA
Stefano Tavella, CPA leads Tavella CPA Group, a cloud-based CPA firm serving individuals and small businesses with tax preparation, planning, notice assistance, and related services.
PRIMARY GUIDANCE
Sources
- New York State Department of Taxation and Finance: Nonresident, Residency, and Telecommuting FAQs
- New York State: Instructions for Form IT-203
- New Jersey Division of Taxation: Credit for Taxes Paid to Other Jurisdictions
- New Jersey Division of Taxation: GIT-3W Credit for Income Taxes Paid to Other Jurisdictions