I'll be working in New Jersey, and I am trying to decide whether to live in NJ or NYC.
My question is: are state/city taxes dependent on where someone lives or where someone works? If I decide to live in NYC, will I then have to pay NY state tax + NYC city tax?
Or alternatively, if I work in NYC, can I avoid paying NY state and NYC city taxes by living in NJ?
My understanding is that NYC will tax you based on the location of the work, regardless of where you live. Check out this article from the Journal of Accountancy. It deals with telecommuting specifically, but it addresses your question well.
answered 02 Jun '10, 00:52
Lance W Gure...
In general, the state in which you are a resident will tax ALL of your income and the state in which you work will tax the income earned in that state. Most (all?) states will give you a resident tax credit for any tax paid to the state where you work.
If you live and work in NYC, you are subject to NY and NYC income tax as a resident, both on your earnings from your job and from any other income (such as interest and dividends).
If you live in NJ and work in NYC, you would be subject to NY tax as a non-resident on your job earnings only. (NYC abolished its non-resident income tax in 1999.)
NJ would tax you on your total income, as a resident, and would give you a credit for the tax paid the NY. However, since (in most cases) NY taxes are higher than NJ for the same income, you will probably end up paying more in total income tax than you would if you lived and worked in NJ, earning the same income.
answered 03 Jun '10, 13:03
I have both lived in NJ while working in NYC and lived in NY (not NYC) while working in NJ. You have to file tax returns in both states. You pay the state where you worked the tax that you would have paid them if you lived there and had no other income except what you earned working there. You pay the state where you lived the tax that you would have paid if you worked there minus either (a) that state's tax on your income also taxed by the other state, or (b) the other state's tax on that income, whichever is less. Because NY taxes are higher than NJ taxes, this "credit" (subtraction) is usually the NJ tax. This means that (1) if you work in NY and live in NJ, you pay NY tax on what you earn at work and NJ tax on your other income, and (2) if you work in NJ and live in NY, then your total tax is the same as if you worked and lived in NY, but some of it goes to NJ and some to NY.
(My actual situation was more complex because of insurance contributions that were not subject to federal or NY tax, but were subject to NJ tax.)
answered 03 Jun '10, 21:26
If you live in NYC or Yonkers, you pay state tax PLUS city tax. The tax is calculated based on the total income earned (and deductions etc). You THEN get a credit for the taxes paid to NJ. If you live in NYC or Yonkers and work in NJ you'd be smart to have NJ and NY and NYC tax withheld.
If you live in NJ, you pay state tax based on total NET income earned. You get a credit based on the taxes paid to NY state.
answered 14 Jun '10, 15:04
blehrhof EA ...