Payroll Tax Changes on the Horizon for Pennsylvania and New Jersey Employers and Residents

Several rules and regulations have recently been passed that will affect payroll. New Jersey has ended a nearly 40-year-old reciprocal tax agreement with Pennsylvania effective December 31, 2016. The agreement allows commuters to pay income tax to the state where they live, rather than the state where they work.

Effective January 1, 2017, Pennsylvania residents working in New Jersey will be subject to New Jersey income tax. Similarly, New Jersey residents working in Pennsylvania will be subject to the Pennsylvania income tax.

Pennsylvania Employers of New Jersey Residents

• You must withhold Pennsylvania income tax for any employee working in Pennsylvania.

• You can no longer accept the REV-419, Employee’s Non-Withholding Application Certificate from New Jersey residents.

• You are not required to register with New Jersey as an employer. However, your employees may ask you to voluntarily withhold New Jersey income tax so they may not need to make estimated quarterly tax payments to New Jersey starting in 2017.

• You must withhold New Jersey income tax for any employee working in New Jersey.

• You can no longer accept New Jersey Form NJ-165, Employee’s Certificate of Non-residence in New Jersey, from Pennsylvania residents.

• Your employees may ask you to voluntarily withhold Pennsylvania income tax so they may not have to make estimated quarterly tax payments to Pennsylvania starting in 2017.

• New Jersey requires that you provide Form NJ-W4 to your employees.

• To begin withholding Pennsylvania income tax, register for a Pennsylvania employer withholding tax account by completing the PA100 Registration Application.

• If you no longer withhold for Pennsylvania, you must cancel your Pennsylvania employer withholding account effective Dec. 31, 2016. You can cancel electronically using the enterprise maintenance feature on the e-TIDES website or by mailing a completed REV-1706 Business/Account Cancellation Form to the PA Department of Revenue. Remember to file any remaining 2016 remittances or returns to satisfy your filing obligations.

A flier is available that you can print and post to inform employees of this important tax change. Additional information for employees is available from the PA Department of Revenue at revenue.pa.gov and the NJ Division of Taxation at njtaxation.org.