New Jersey is ending a nearly 40-year-old tax reciprocal agreement with Pennsylvania. The agreement allowed workers to pay tax to their home state, rather than the state where they work. New Jersey’s decision means workers may now have to pay taxes to both states.


Beginning January 1, 2017:

Impacted workers may owe tax to Pennsylvania and New Jersey.

Some workers may have to make estimated quarterly payments.

Most workers will need to file a tax return in both states starting in 2018.


The Pennsylvania Department of Revenue (DOR) has issued an information flier on the end of the reciprocity agreement with New Jersey. Businesses in Pennsylvania that employ New Jersey residents will have to withhold Pennsylvania taxes from their wage income.


Businesses in New Jersey that employ Pennsylvania residents should consult New Jersey’s instructions for withholding.


Businesses that employ workers in both states will need to calculate the earnings and tax withholding on the amount of compensation earned by any employee that works in both states.


For more information, please review this Q&A on the end of the Pennsylvania and New Jersey tax agreement. Employers are welcome to download, print and post this flier to help inform employees.



Thank you for choosing Paylocity as your payroll tax partner. Should you have any questions please contact your Paylocity Account Manager.


This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a payroll service provider are encouraged to seek the advice of a qualified CPA, tax attorney, or advisor.