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Live in NJ, Work in NYC: Taxes Guide

Due to the high real estate prices, it’s common for those who work in New York City to live in New Jersey and commute when they have to go into the office. One of the biggest perks of living in NJ and working in NYC is the tax benefits. 

There are plenty of desirable suburbs across the state line that offer easy access to the city for commuters. But that does create a few complications when it comes time to file taxes. So, here is a quick guide to help you better understand your tax obligations if you live in Jersey but work in New York.

Do You Need to Pay Taxes in Both NY and NJ?

Yes, you will pay taxes in both states if you live in NJ and work in NYC, but you won’t be double-taxed as you will receive credits for taxes paid. Best of all, you won’t have to pay NYC income taxes, which only apply to residents of New York City. 

Residents of New Jersey who work in New York will fill out both an NJ Resident Income tax return and a NY Nonresident Income tax return. Your employer will then withhold your New York taxes and report your income to the state of New Jersey. 

Residents will get a tax credit for any taxes paid to the state of New York that will apply to their Jersey tax return. So, it may make your taxes more complicated, but you will only pay tax on your income earned in New York, and the state of New Jersey will handle everything else – meaning you won’t have a bill that is double the normal amount.

Do You Need to Pay a Commuter Tax?

The metropolitan commuter transportation mobility tax is a tax imposed on employers and self-employed individuals who conduct business within the Metropolitan commuter transportation district (MCTD). The MCTD includes all five boroughs and Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester counties. This tax finances the department responsible for the Metropolitan Transit Authority.

So, if you are a W-2 employee, you don’t have to worry about paying the commuter tax. But if you are self-employed, you may be subject to this tax. Self-employed individuals who make over $50,000 per year must pay .34% of the net profit earned on their self-employment income to the MTCD. The majority of commuters who live in New Jersey are salaried employees and won’t have to worry about this tax. But if you own a business or are self-employed, you should make sure to factor this tax into your calculations. It can be paid quarterly, along with your other estimated tax payments.

What Do Remote Workers Need to Know for the upcoming Tax Season?

Remote workers may save a significant amount of money in taxes by telecommuting. Generally, residents only pay income tax on money earned while physically located within the state.

 So, if your company’s office is located in Manhattan, and you work there five days a week, you will still pay tax on that income. But if you go to the office three days a week and work from home for two, you will only pay income tax in New York on 3/5ths of your paycheck. 

If you work from home full time, you would only pay New Jersey income tax, even if your employer is located in New York. The tricky part is proving where you work on specific days of the week. It’s a bit easier if you are entirely remote instead of working a hybrid. But either way, you should be sure to keep extensive records if you’re ever audited.

What if You’re a Freelancer with Clients Based in New York?

It all boils down to where you work. If you work entirely from home or some office space in New Jersey, you will pay New Jersey income taxes, even if your clients are in New York. But if you spend time working at a client’s office or you rent an office space in New York, you may be required to pay New York income tax. 

It’s really on a case-by-case basis. Same with telecommuting, if you spend all your time in Jersey but simply work with businesses based in New York, you don’t have to worry about paying New York income tax. But, if you are more of a hybrid, it gets more complicated. So, you should be sure to keep accurate records and consider hiring a professional if you’re not sure. 

What if Your Employer is in NY and You Perform Services Out of State?

Your tax situation can also get more complex if you perform services in an entirely different state. Say, for example, you work in sales and often travel to other parts of the Northeast to pitch to clients. Depending on how often you travel and how much work is conducted in another state, you may also be on the hook to pay state taxes, especially if you are receiving payments from banks within that state. 

If this is the case, you should consult your employer and see if they have a protocol for withholding certain taxes to pay these out-of-state taxes. Or you may want to consult a professional to find out if you owe taxes in other states. It may be advantageous to file elsewhere if they have a lower tax rate. But it will make filing more difficult because you will have to file three or more returns (New York, New Jersey, and any additional states you work in).

It May Help to Bring in a Professional 

When in doubt, it never hurts to consult a professional. Even if you don’t hire a full-time CPA, it still may be beneficial to consult an expert around tax season or whenever you have a question about your taxes. This is especially true if you need to calculate your New Jersey tax credit or split your work week between the two states. While hiring an accountant isn’t cheap, it may be less expensive than overpaying or facing an audit if you don’t pay enough. But it all depends on how complicated your filing is and how much you could potentially save by hiring a professional.