Working in New York City and living in NJ: Taxes

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BogleAlltheWay
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Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Thu Jul 13, 2017 9:35 am

Hi all,

Would my taxes be less if I lived in NJ and worked in NYC as opposed to living and working in NYC?
Last edited by BogleAlltheWay on Thu Jul 13, 2017 12:51 pm, edited 1 time in total.

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Re: Working in New York City and living in NJ

Post by Grt2bOutdoors » Thu Jul 13, 2017 9:57 am

That all depends on whether you are renting or owning the place you live in.
You will pay NYS/NYC taxes but then when filing income taxes will receive a credit from state of NJ for taxes paid to other jurisdictions. The amount of the credit will reduce the overall amount of state/local income related taxes.
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Re: Working in New York City and living in NJ

Post by Suman » Thu Jul 13, 2017 10:02 am

You will not pay New York city tax. You will pay New York state tax for the income generated in NYS.

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Pajamas
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Re: Working in New York City and living in NJ

Post by Pajamas » Thu Jul 13, 2017 10:23 am

Living in NJ and working in NYC, you would file both a NY State nonresident tax return and a NJ State resident tax return. NY only taxes you on your NY income. NJ taxes you on everything but gives you a credit for the taxes you paid NY.

If you live in NYC, you also have to pay NYC income taxes.

Here are the NYC tax rates:

https://www.tax.ny.gov/pdf/current_form ... hedule.pdf

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Re: Working in New York City and living in NJ

Post by BogleAlltheWay » Thu Jul 13, 2017 10:35 am

Will I be paying less taxes since I no longer have to pay NYC taxes?

My NJ state income tax would be less if I lived and worked in NJ, but I am unsure what tax rate I would pay if I worked in NYC.

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Re: Working in New York City and living in NJ

Post by BogleAlltheWay » Thu Jul 13, 2017 10:35 am

Grt2bOutdoors wrote:That all depends on whether you are renting or owning the place you live in.
You will pay NYS/NYC taxes but then when filing income taxes will receive a credit from state of NJ for taxes paid to other jurisdictions. The amount of the credit will reduce the overall amount of state/local income related taxes.
What difference does renting vs owing make?

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Re: Working in New York City and living in NJ

Post by Exhilarate » Thu Jul 13, 2017 10:38 am

It depends. If living in NJ:
NY State income tax should typically be credited back by NJ, thus not a factor. Besides capital gains/etc you typically won't be owing more to NJ.

NY City income tax will not be owed at all (unless you work for the City of NY)

If you own your home, property tax can be significantly higher in NJ. This may offset some/all of the NYC income tax saved.

Finally, there are other smaller factors to consider such as commute/bridge/tunnel costs.

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Re: Working in New York City and living in NJ

Post by user5027 » Thu Jul 13, 2017 10:41 am

If you file your federal return as Married Filing Jointly, New York requires you to file the same way, even if the spouse's income is not earned in New York.

Tax is only paid on the income earned in New York, but the rate is determined by the jointly earned income. It is a progressive tax. A high earning spouse can push you up a bracket or two.

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Re: Working in New York City and living in NJ

Post by BogleAlltheWay » Thu Jul 13, 2017 10:55 am

Exhilarate wrote:It depends. If living in NJ:
NY State income tax should typically be credited back by NJ, thus not a factor. Besides capital gains/etc you typically won't be owing more to NJ.

NY City income tax will not be owed at all (unless you work for the City of NY)

If you own your home, property tax can be significantly higher in NJ. This may offset some/all of the NYC income tax saved.

Finally, there are other smaller factors to consider such as commute/bridge/tunnel costs.
Wouldn't I save on capital gains tax because I would not have to pay NYC tax?

The property taxes in NJ are higher, but the same house in NYC is higher priced. (At least where I would live)

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Re: Working in New York City and living in NJ

Post by Grt2bOutdoors » Thu Jul 13, 2017 12:06 pm

BogleAlltheWay wrote:
Exhilarate wrote:It depends. If living in NJ:
NY State income tax should typically be credited back by NJ, thus not a factor. Besides capital gains/etc you typically won't be owing more to NJ.

NY City income tax will not be owed at all (unless you work for the City of NY)

If you own your home, property tax can be significantly higher in NJ. This may offset some/all of the NYC income tax saved.

Finally, there are other smaller factors to consider such as commute/bridge/tunnel costs.
Wouldn't I save on capital gains tax because I would not have to pay NYC tax?

The property taxes in NJ are higher, but the same house in NYC is higher priced. (At least where I would live)
Property not associated with a NY Income Source is excluded from NY taxation. You incur a capital gain in NJ, you will pay taxes on that. Further, depending on size of income, NJ taxes are comparable to NY/NYC taxes combined. Depends what town in NJ you live in - some towns are comparable to NYC real estate.
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BogleAlltheWay
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Re: Working in New York City and living in NJ

Post by BogleAlltheWay » Thu Jul 13, 2017 12:51 pm

Is there a website I can use to make a comparison of the taxes for living on one state and working in another?

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Re: Working in New York City and living in NJ

Post by chinto » Thu Jul 13, 2017 5:10 pm

BogleAlltheWay wrote:Is there a website I can use to make a comparison of the taxes for living on one state and working in another?
You really, really, really should look at more than current taxes. For instance, NJ is currently the State with the worst fiscal situation in the nation, followed by Illinois. What that means is property taxes are likely to rise even more in both states. So you sort of want to look at where things are currently and try a little bit to divine where they are likely to head.

Here is one of many links you can find to help you get started:

http://www.washingtonexaminer.com/the-5 ... le/2628211

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Re: Working in New York City and living in NJ

Post by BogleAlltheWay » Fri Jul 14, 2017 8:10 am

chinto wrote:
BogleAlltheWay wrote:Is there a website I can use to make a comparison of the taxes for living on one state and working in another?
You really, really, really should look at more than current taxes. For instance, NJ is currently the State with the worst fiscal situation in the nation, followed by Illinois. What that means is property taxes are likely to rise even more in both states. So you sort of want to look at where things are currently and try a little bit to divine where they are likely to head.

Here is one of many links you can find to help you get started:

http://www.washingtonexaminer.com/the-5 ... le/2628211
Thanks. The property taxes are higher but the houses are cheaper for my situation(100K -200K cheaper). If i don't have to pay NYC taxes that will cover a significant portion of the extra taxes.

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Re: Working in New York City and living in NJ: Taxes

Post by grabiner » Fri Jul 14, 2017 8:57 pm

Another tax issue is that you can only take a credit of your NY tax against your NJ tax for income taxed by both states. For example, if your NJ income is $100K and NY taxes $80K of that income, your credit for NY tax is the lesser of 80% of your NJ tax, or 100% of your NY tax.

NJ taxes contributions to HSAs, traditional IRAs, 403(b)s (but not 401(k)s), and health insurance paid by payroll deduction (although you may get that last one back because NJ allows a deduction for medical expenses over 2% of AGI). Therefore, even with a lower tax rate by avoiding NYC tax, you may wind up paying more total tax if you have a lot of these items.
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Re: Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Sat Jul 15, 2017 12:16 am

grabiner wrote:Another tax issue is that you can only take a credit of your NY tax against your NJ tax for income taxed by both states. For example, if your NJ income is $100K and NY taxes $80K of that income, your credit for NY tax is the lesser of 80% of your NJ tax, or 100% of your NY tax.

NJ taxes contributions to HSAs, traditional IRAs, 403(b)s (but not 401(k)s), and health insurance paid by payroll deduction (although you may get that last one back because NJ allows a deduction for medical expenses over 2% of AGI). Therefore, even with a lower tax rate by avoiding NYC tax, you may wind up paying more total tax if you have a lot of these items.
Thank you for the detailed response. If my health care premiums are over 2% do I get to deduct all of it?

If one spouse works in NYC and the other works in NJ, is there a tax benefit to living in NYC versus NJ?
Does it depends on which spouse earns more?

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Re: Working in New York City and living in NJ: Taxes

Post by grabiner » Sat Jul 15, 2017 8:55 am

BogleAlltheWay wrote:
grabiner wrote:Another tax issue is that you can only take a credit of your NY tax against your NJ tax for income taxed by both states. For example, if your NJ income is $100K and NY taxes $80K of that income, your credit for NY tax is the lesser of 80% of your NJ tax, or 100% of your NY tax.

NJ taxes contributions to HSAs, traditional IRAs, 403(b)s (but not 401(k)s), and health insurance paid by payroll deduction (although you may get that last one back because NJ allows a deduction for medical expenses over 2% of AGI). Therefore, even with a lower tax rate by avoiding NYC tax, you may wind up paying more total tax if you have a lot of these items.
Thank you for the detailed response. If my health care premiums are over 2% do I get to deduct all of it?
See the NJ tax forms. Medical costs exceeding 2% of AGI are deductible in NJ. Thus you don't get to deduct all of your premium, but the combination of your premium and out-of-pocket expenses is likely to allow you to deduct most of your premium.
If one spouse works in NYC and the other works in NJ, is there a tax benefit to living in NYC versus NJ?
Does it depends on which spouse earns more?
The tax situation is likely to be significantly better if you live in NJ. If you live in NYC, you both pay NY and NYC tax on all of your income. In addition, you cannot take a credit against your NY or NYC tax for NJ tax paid income that is not taxed by NY, so your total tax may be more than the NYC tax on all your income. Conversely, if you live in NJ, you pay NY but not NYC tax on all your income, and can take that as a credit against your NJ tax, so your total tax is likely to be close to the NJ tax on all your income.
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Re: Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Sat Jul 15, 2017 12:02 pm

grabiner wrote:
BogleAlltheWay wrote:
grabiner wrote:Another tax issue is that you can only take a credit of your NY tax against your NJ tax for income taxed by both states. For example, if your NJ income is $100K and NY taxes $80K of that income, your credit for NY tax is the lesser of 80% of your NJ tax, or 100% of your NY tax.

NJ taxes contributions to HSAs, traditional IRAs, 403(b)s (but not 401(k)s), and health insurance paid by payroll deduction (although you may get that last one back because NJ allows a deduction for medical expenses over 2% of AGI). Therefore, even with a lower tax rate by avoiding NYC tax, you may wind up paying more total tax if you have a lot of these items.
Thank you for the detailed response. If my health care premiums are over 2% do I get to deduct all of it?
See the NJ tax forms. Medical costs exceeding 2% of AGI are deductible in NJ. Thus you don't get to deduct all of your premium, but the combination of your premium and out-of-pocket expenses is likely to allow you to deduct most of your premium.
I am seeing how that and the HSA not being tax deductible eats into some of the tax advantages of NJ.
grabiner wrote:
BogleAlltheWay wrote:If one spouse works in NYC and the other works in NJ, is there a tax benefit to living in NYC versus NJ?
Does it depends on which spouse earns more?
The tax situation is likely to be significantly better if you live in NJ. If you live in NYC, you both pay NY and NYC tax on all of your income. In addition, you cannot take a credit against your NY or NYC tax for NJ tax paid income that is not taxed by NY, so your total tax may be more than the NYC tax on all your income. Conversely, if you live in NJ, you pay NY but not NYC tax on all your income, and can take that as a credit against your NJ tax, so your total tax is likely to be close to the NJ tax on all your income.
So then using a NJ income calculator will get me a decent estimate of the tax differences.

Does it matter in which state more of the income is earned?
Are there any tax benefits for having the income in two states? For example, assuming health care plans are equal, is it better to have the health care plan in NYC due it guaranteed to be tax deductible? Or is there any tax benefit of favoring the 401k in NYC?

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Re: Working in New York City and living in NJ: Taxes

Post by grabiner » Sat Jul 15, 2017 9:48 pm

BogleAlltheWay wrote:Does it matter in which state more of the income is earned?
Are there any tax benefits for having the income in two states? For example, assuming health care plans are equal, is it better to have the health care plan in NYC due it guaranteed to be tax deductible? Or is there any tax benefit of favoring the 401k in NYC?
There is no tax benefit for having the income in two states. If income is taxed only by one state, you pay tax at that state's rate. If it is taxed by both states, you pay tax at the higher of the two rates; you pay non-resident tax, and then take either the non-resident tax or a prorated share of the resident tax as a credit against your resident tax.

There is a benefit for having income not taxed in either state; if you live in NYC, then income items taxable under NJ law but not earned in NJ will not affect your state taxes. (However, you will pay tax at the higher NYC rate on all your income.)
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Re: Working in New York City and living in NJ: Taxes

Post by Pajamas » Sun Jul 16, 2017 8:13 am

Do your taxes both ways using online tax prep software. If you don't file the forms, you shouldn't have to pay for doing so.

Considering how much money is at stake, it would be well worth the time spent doing this to get a definitive answer, or at least definitive as far as current tax law.

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Re: Working in New York City and living in NJ: Taxes

Post by grabiner » Sun Jul 16, 2017 8:33 am

Pajamas wrote:Do your taxes both ways using online tax prep software. If you don't file the forms, you shouldn't have to pay for doing so.
The software alone will not suffice; you need to read the instructions for the tax forms. In particular, the software will allow you to enter the wrong number for your salary taxable by NJ if you don't know what is taxable in NJ and exempt in NY; it could compute the wrong NJ tax, or the wrong credit for income taxed by both states.
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Re: Working in New York City and living in NJ: Taxes

Post by Pajamas » Sun Jul 16, 2017 8:35 am

grabiner wrote:
Pajamas wrote:Do your taxes both ways using online tax prep software. If you don't file the forms, you shouldn't have to pay for doing so.
The software alone will not suffice; you need to read the instructions for the tax forms. In particular, the software will allow you to enter the wrong number for your salary taxable by NJ if you don't know what is taxable in NJ and exempt in NY; it could compute the wrong NJ tax, or the wrong credit for income taxed by both states.
I think it is implied that if you use tax software, you need to use it correctly!


Another option would be to talk to an experienced tax preparer in NJ. Lots of people live in NJ and work in NYC and they can probably give you good guidance.

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Re: Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Sun Jul 16, 2017 11:29 am

grabiner wrote:
BogleAlltheWay wrote:Does it matter in which state more of the income is earned?
Are there any tax benefits for having the income in two states? For example, assuming health care plans are equal, is it better to have the health care plan in NYC due it guaranteed to be tax deductible? Or is there any tax benefit of favoring the 401k in NYC?
There is no tax benefit for having the income in two states. If income is taxed only by one state, you pay tax at that state's rate. If it is taxed by both states, you pay tax at the higher of the two rates; you pay non-resident tax, and then take either the non-resident tax or a prorated share of the resident tax as a credit against your resident tax.

There is a benefit for having income not taxed in either state; if you live in NYC, then income items taxable under NJ law but not earned in NJ will not affect your state taxes. (However, you will pay tax at the higher NYC rate on all your income.)
Are there any other major tax deductions differences outside of the medical expenses, traditional IRA, 403b and HSA?
For 100k AGI does that mean I would lose out on 2k *(6.37%nj tax rate) ~ $125 of medical tax benefits?

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Re: Working in New York City and living in NJ: Taxes

Post by grabiner » Sun Jul 16, 2017 11:51 am

BogleAlltheWay wrote:Are there any other major tax deductions differences outside of the medical expenses, traditional IRA, 403b and HSA?
For 100k AGI does that mean I would lose out on 2k *(6.37%nj tax rate) ~ $125 of medical tax benefits?
The only tax deductions in NJ are medical expenses and NJ property taxes (or a prorated share of the rent if you rent in NJ); NY has essentially the same deductions as federal tax except for state tax. NY also has larger exemptions and standard deductions. Thus, if you live in NJ, you will pay tax on more total income; if you live in NY, you will pay NJ tax on a larger total of NJ income, but you may get this NJ tax back as a credit.
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Re: Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Sun Jul 16, 2017 12:05 pm

grabiner wrote:
BogleAlltheWay wrote:Are there any other major tax deductions differences outside of the medical expenses, traditional IRA, 403b and HSA?
For 100k AGI does that mean I would lose out on 2k *(6.37%nj tax rate) ~ $125 of medical tax benefits?
The only tax deductions in NJ are medical expenses and NJ property taxes (or a prorated share of the rent if you rent in NJ); NY has essentially the same deductions as federal tax except for state tax. NY also has larger exemptions and standard deductions. Thus, if you live in NJ, you will pay tax on more total income; if you live in NY, you will pay NJ tax on a larger total of NJ income, but you may get this NJ tax back as a credit.
401k or mortgage is not tax deductible in NJ?
Does that mean if you have a lot of deductions(which I don't yet), it can close the gap in tax difference between NY and NJ?

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Re: Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Sun Jul 16, 2017 12:06 pm

Pajamas wrote:
grabiner wrote:
Pajamas wrote:Do your taxes both ways using online tax prep software. If you don't file the forms, you shouldn't have to pay for doing so.
The software alone will not suffice; you need to read the instructions for the tax forms. In particular, the software will allow you to enter the wrong number for your salary taxable by NJ if you don't know what is taxable in NJ and exempt in NY; it could compute the wrong NJ tax, or the wrong credit for income taxed by both states.
I think it is implied that if you use tax software, you need to use it correctly!


Another option would be to talk to an experienced tax preparer in NJ. Lots of people live in NJ and work in NYC and they can probably give you good guidance.
I do want to do the taxes both ways, but I would screw up on the software. Talking to a tax preparer is a good idea.

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Re: Working in New York City and living in NJ: Taxes

Post by grabiner » Sun Jul 16, 2017 8:54 pm

BogleAlltheWay wrote:
grabiner wrote:The only tax deductions in NJ are medical expenses and NJ property taxes (or a prorated share of the rent if you rent in NJ); NY has essentially the same deductions as federal tax except for state tax. NY also has larger exemptions and standard deductions. Thus, if you live in NJ, you will pay tax on more total income; if you live in NY, you will pay NJ tax on a larger total of NJ income, but you may get this NJ tax back as a credit.
401k or mortgage is not tax deductible in NJ?
Does that mean if you have a lot of deductions(which I don't yet), it can close the gap in tax difference between NY and NJ?
Check the forms yourself, from the NJ Division of Taxation

A 401(k) is deductible in NJ because it isn't income; contributions do not appear on your W-2 and are not taxed. (This applies only to 401(k) plans; if you have some other plan such as a 403(b), your NJ state wages will be higher than your federal wages because NJ does not allow deductions.)

NJ doesn't have the usual itemized deductions which the federal government and most states have. There are lines for specific deductions, and anything which does not have a line is not deductible in NJ. In particular, mortgage interest and charitable contributions, which are deductible in most states, are not deductible in NJ.
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Re: Working in New York City and living in NJ: Taxes

Post by BogleAlltheWay » Mon Jul 17, 2017 10:01 am

grabiner wrote:
BogleAlltheWay wrote:
grabiner wrote:The only tax deductions in NJ are medical expenses and NJ property taxes (or a prorated share of the rent if you rent in NJ); NY has essentially the same deductions as federal tax except for state tax. NY also has larger exemptions and standard deductions. Thus, if you live in NJ, you will pay tax on more total income; if you live in NY, you will pay NJ tax on a larger total of NJ income, but you may get this NJ tax back as a credit.
401k or mortgage is not tax deductible in NJ?
Does that mean if you have a lot of deductions(which I don't yet), it can close the gap in tax difference between NY and NJ?
Check the forms yourself, from the NJ Division of Taxation

A 401(k) is deductible in NJ because it isn't income; contributions do not appear on your W-2 and are not taxed. (This applies only to 401(k) plans; if you have some other plan such as a 403(b), your NJ state wages will be higher than your federal wages because NJ does not allow deductions.)

NJ doesn't have the usual itemized deductions which the federal government and most states have. There are lines for specific deductions, and anything which does not have a line is not deductible in NJ. In particular, mortgage interest and charitable contributions, which are deductible in most states, are not deductible in NJ.
That explains why are the NJ tax rates are much lower. I don't have many deductions now but there are several deductions that might be useful for the future. Once I do the calculation, I will know for sure, I can't see NJ taxes being more than NY outside of special cases or high income. Even if it is a bit more I save on city taxes

Thanks for all your help.

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