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Christie ending income tax pact with Pa., which will cost some N.J. residents more

Friday, September 2, 2016   (0 Comments)
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NJ.com 09/02/16

Gov. Chris Christie's administration announced Friday it has notified Pennsylvania that the state is pulling out of a 38-year-old agreement that allows New Jersey and Pennsylvania residents who work across the river to pay income taxes where they live. The tax change will reap tens of millions of dollars for New Jersey, but comes at a cost for some residents of both states who will get socked with higher income taxes. The governor was required to give Pennsylvania 120 days notice in order to withdraw from the agreement by Jan. 1, the beginning of the next tax year. Christie directed New Jersey state officials to begin exploring the consequences of withdrawing from the tax pact at the end of June. He can take the action without Legislative approval. 

"Today's action was made necessary by the Legislature irresponsibly creating a $250 million state budget hole in June," Christie said. "I will not raise state taxes, cut property tax relief, reduce aid to education or our hospitals, or reduce the state's record pension payment to cover for this blunder by the Legislature." "I am left with the least painful option I have to fulfill my constitutional duty to balance the budget for New Jersey taxpayers," he continued. The budget passed by the Legislature assumed the state would come up with $250 million in cuts to public worker health care but did not identify those savings or mandate them. Christie, however, has tied a spending freeze to the cuts, saying he won't release the funds until the $250 million is paid in full. He said Friday he will reconsider his decision to withdraw from the tax agreement with Pennsylvania if the Legislature makes good on the cuts.

Currently, New Jersey doesn't collect income taxes from people living in Pennsylvania and working in New Jersey. Christie's former treasurer has estimated the Garden State would reap $180 million in revenue from Pennsylvania residents forced to pay taxes here. Under the reciprocal agreement, a resident of New Jersey who works in Pennsylvania need only file a tax return in New Jersey. The same is true for a Pennsylvania resident working in New Jersey. Scrapping the deal means either resident would have to file two tax returns and claim a credit against taxes owed where they live for taxes paid in the state where they work. Higher income Pennsylvania residents working in New Jersey are likely to pay much more. That state has a flat 3.07 percent income tax rate, while New Jersey's graduated income tax tops out at 8.97 percent. A highly paid executive living in Pennsylvania but working in New Jersey now can pay Pennsylvania's 3.07 percent flat tax. But an end to the reciprocal agreement means they'd have to pay New Jersey taxes, experts say.


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