Trenton – Legislation sponsored by Senator Fred Madden, Senate President Steve Sweeney and Senator Troy Singleton that would require legislative approval before the director of the Division of Taxation can terminate reciprocal personal income tax agreements with other states was approved by the Senate Budget and Appropriations Committee today.
“The reciprocal income tax agreement between New Jersey and Pennsylvania benefits residents from both states, and there is no reason it should ever have been threatened,” said Senator Madden (D-Camden/Gloucester). “It is important to South Jersey residents and employers, and this bill will make sure what happened in 2016 won’t happen again.”
The bill, S-563, would help preserve the bi-state agreement with Pennsylvania that allows taxpayers to pay income taxes in the state in which they live by preventing the unilateral termination of these pacts by the New Jersey Division of Taxation without legislative approval.
“Protecting this agreement is important to the middle-class families who realize financial savings from this arrangement,” said Senator Sweeney (D-Gloucester/Salem/Cumberland). “Our goal is to make New Jersey competitive to attract businesses and create real job opportunities for our residents. Employers want predictability, and this legislation is vital to creating and retaining jobs here in our state.”
“This agreement has a far-reaching financial impact on many families and businesses throughout South Jersey,” said Senator Singleton (D-Burlington). “Preservation of the reciprocal income tax agreement is vital to sustaining the economic health of our residents, our business owners, and our region.”
In 2016, then-Governor Chris Christie announced he would terminate the agreement between New Jersey and Pennsylvania as part of a plan to fill a deficit in that year’s state budget. Christie later reversed his decision and decided to stay in the agreement. Under current law, the director of the Division of Taxation has broad powers to enter into and terminate reciprocal personal income tax agreements with other states without the input of the Legislature.
The bill would modify the existing powers of the Taxation director to bar termination of such agreements without direct authorization through enactment of a law by the Legislature and the Governor. The law would be retroactive to 1977, covering the New Jersey-Pennsylvania agreement.
Approximately 125,000 New Jersey residents commute to Pennsylvania and another 125,000 make the reverse trip, according to Census Bureau estimates. Pennsylvania has a flat 3.07 percent income-tax rate while New Jersey has a more progressive tax structure with rates from 1.4 percent to 10.75 percent.
New Jersey and Pennsylvania established the Reciprocal Personal Income Tax Agreement in 1977 allowing residents from both states who work across state lines to pay income taxes where they live rather than where they work. This means that Pennsylvania residents who are employed in New Jersey are not subject to the New Jersey gross income tax, and New Jersey residents who are employed in Pennsylvania are not subject to the Pennsylvania income tax. Instead, employers in each state are required to withhold the corresponding state’s gross income tax on compensation paid to employees.
The bill was released from committee by a vote of 11-0.