New Jersey Governor Signs Tax Credit for Remote Workers

Remote workers in New Jersey who are subject to New York’s income tax can now claim a credit against their state tax liability under a bill signed by Gov. Phil Murphy (D) Friday.

The new law attempts to address the tax liability of New Jersey residents employed by New York companies, but who work remotely from the Garden State. The measure (A4694) allows remote workers to claim a tax credit to offset their state tax obligation and incentivize more workers to move to New Jersey.

The law introduces a “convenience of the employer test” for residents of states with similar policies, such as New York. Now, if a New York resident works for a New Jersey company, performing tasks that don’t require them to be present in New York, they would be subject to New Jersey taxation.

The convenience of the employer rule—which also exists in Connecticut, Delaware, Nebraska, New York, and Pennsylvania—allocates wages earned by nonresident employees to the location of their assigned office, even if the work is conducted at a home office in a different state. There are exceptions for employees working from home due to specific employer requirements rather than for their own convenience. New Jersey has a personal income tax reciprocity agreement with Pennsylvania that spares it from the issue it faces with New York.

“We want to make sure that our New Jersey residents are being taxed fairly,” Murphy said at a press conference in Fort Lee, across the Hudson River from Manhattan. “I’m a signing a bill that will help ensure New Jersey taxpayers’ dollars stay in our state and go to programs and services that benefit New Jerseyans, bringing our policies in line with our neighboring states, and bring our policies in line with New York.”

The measure creates a credit for New Jerseyans who obtain a refund from New York. They could get 50% of what they owe New Jersey after the refund from New York.

The bill also offers a $2,000 nonrefundable gross income tax credit for employees relocating from other states to New Jersey. The amount is capped at $10 million a year.

In addition, the legislation creates a pilot program, overseen by the Economic Development Authority, that will offer grants to businesses that relocate their New Jersey-dwelling employees from out-of-state areas to locations within New Jersey. Companies must have 25 or more full-time employees and primarily operate in another state to qualify. The law caps the grant program at $35 million in any fiscal year.

Tom Bracken, president and chief executive officer of the New Jersey Chamber of Commerce, said the group supports the pilot program enticing New York businesses to assign their New Jersey employees to locations within the state. “The Chamber supports today’s bill signing because, after years of unfair tax treatment towards New Jersey commuters, the state is recognizing the need to end the current tax imbalance by treating New York commuters who work in the Garden State similarly,” Bracken said in a statement.

The Senate approved the bill unanimously on June 30 and the House on May 25.