What Is The Reciprocal Agreement Between Nj And Pa

In September 2016, Governor Chris Christie reportedly announced to Pennsylvania New Jersey`s intention to withdraw from the mutual tax treaty. Under that agreement, which had been in force since 1977, residents of one State who earned a salary in the other State paid their State of residence only taxes on those wages. Under the Agreement, any State may terminate the Agreement at the beginning of a calendar year by giving the other State 120 days` notice. In its current form, the mutual agreement will expire on 1 January 2017. But under a bill passed unanimously last week by members of the Senate Budget and Budget Committee, state legislatures would have the power to prevent at least one governor from taking unilateral action against mutual agreement. While income tax structures were similar when the mutual agreement was first reached, New Jersey`s income tax has evolved over the years toward a progressive system where residents pay at a higher rate as they progress through a range of income brackets. Rates range from 1.4% at the lowest end to 10.75% for profits over $1 million. But this time, the pressure to give lawmakers a greater say in the future of the mutual agreement comes amid the pandemic that has weighed on the state`s economy, including in South Jersey, where the effects of the bilateral deal are most being felt. This is especially beneficial for Pennsylvania residents who pay a fixed income tax rate of 3.07%, compared to the Progressive New Jersey tax, which ranges from 1.4% to 8.97% for those earning more than $500,000. Compensation paid to New Jersey residents employed in Pennsylvania is not subject to Pennsylvania income tax.

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