November 29, 2016

Reciprocity Agreement Between New Jersey and Pennsylvania to Remain Intact

Contributor Andrew Ebneter, Partner, Tax & Business

Reciprocity Agreement Between New Jersey and Pennsylvania to Remain Intact State & Local Tax

New Jersey Governor Chris Christie has decided to leave in place a nearly 40-year-old agreement with the state of Pennsylvania, allowing commuters from both states to pay income tax only to their home state.

In our earlier Marcum Tax Flash (“New Jersey Set to End Personal Income Tax ‘Reciprocity’ with Pennsylvania”) published on October 14, 2016, we had advised that Governor Christie was set to unilaterally end the reciprocity agreement in order to compensate for state budget deficits in New Jersey. This proposal would have required commuters to pay tax in both their home state and the state where they worked. In making the original announcement, Governor Christie reserved the right to revisit his decision if the New Jersey Legislature made satisfactory progress in obtaining proposed public employee health insurance savings.

On November 22, Christie announced that the reciprocity agreement could be salvaged due to achieving savings of more than $200 million, arising from a bipartisan bill signed into law a day earlier that adjusted the state’s pharmacy benefits system. The move was heralded by state politicians from the border areas of New Jersey and Pennsylvania as an example of thoughtful, bi-partisan politics that better served commuters from both states, and also provided stability for businesses either located in the border region or moving into that area (including Subaru, as the automotive giant had broken ground on a national headquarters complex in Camden, New Jersey, but had mulled stalling or stopping this project if reciprocity were to be revoked). Additionally, the retention of the reciprocity agreement will save employers from having to scramble to modify their payroll withholding processes.

Should you have any questions about these proposals, contact your Marcum State and Local Tax Advisor.

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