November 15, 2016
Shapiro Financial Security Group, Inc.
In late September of 2016, Governor Christie of New Jersey announced that he was withdrawing from a four decades long reciprocal tax agreement with the state of Pennsylvania that had allowed approximately 250,000 New Jersey and Pennsylvania residents who work across state lines to pay taxes where they live, rather than where they work.
The Governor based his decision on an assumption in the budget passed by the New Jersey Legislature in which it was assumed that the state would come up with $250 million in cuts to public worker health care, but did not identify those savings nor mandate them.
Christie had asked that the Legislature include language mandating that the state’s health care committee approve $250 million in health benefit savings by a given deadline and, if they did not act within those parameters, state officials would find the savings for them. “Either the Legislature comes back and gives me the tools to get the savings that they promised in their budget for health care, or the compact is gone.” said Christie, speaking on his radio show “Ask the Governor” on September 27,2016. The Governor also expressed his opinion that the reciprocal tax agreement was “not good policy” because it gives a tax break to only certain residents in one section of the state.
According to NJ.com, higher income Pennsylvania residents working in New Jersey are likely to pay much more without the agreement in place. Pennsylvania currently has a flat 3.07 percent income tax rate while New Jersey has a top rate of 8.97 percent. The non-partisan New Jersey Office of Legislative Services (OLS) estimated that a Pennsylvania resident earning $1 million a year in New Jersey will see their state income tax more than double from $30,500 to $72,658.
Low and middle income New Jersey residents who commute to Pennsylvania will also pay more. According to the OLS, New Jersey residents earning $80,000 working in Pennsylvania would see an increase from $1645 in state tax to $2440. That estimate does not include any additional local income taxes owed.
The change in reciprocity is expected to bring in an additional $180 million dollars annually to New Jersey while costing Pennsylvania about $5 million per year.
This announcement is not yet final and would not take effect until January 1, 2017 if approved.