NJ NY Commuter Tax: Your Complete Guide to Living in NJ, Working in NYC
- Gregory Monaco, CPA
- Dec 27, 2025
- 5 min read
NJ residents who work in NYC face dual-state filing requirements but are protected from double taxation through New Jersey's credit for taxes paid to other states. You'll file returns in both states: a NY non-resident return and a NJ resident return, with NY taxes credited against your NJ liability.
Why You File in Two States
When you live in one state but earn income in another, both states claim a right to tax that income.
State | Tax Basis | Tax Type |
New York | Source-based (where income is earned) | Non-resident income tax |
New Jersey | Residence-based (where you live) | Resident income tax with credit |
Your Filing Requirements
New York State (Non-Resident Return)
File Form IT-203 (Non-Resident and Part-Year Resident Income Tax Return) reporting your NY-source income. NY taxes your income at the rate that would apply to your total income, but only on the portion actually earned in New York.
New Jersey (Resident Return)
File Form NJ-1040 reporting your worldwide income—including NY wages. Claim a credit for taxes paid to New York on Schedule A to avoid double taxation.
The NJ Credit for Taxes Paid to Other States
This credit prevents double taxation on the same income.
How the Credit Works
Calculate your NJ tax on all income (including NY wages)
Calculate tax paid to New York on NY-source income
Credit equals the lesser of: NY tax paid OR NJ tax attributable to that income
Example
Income: $200,000 (all earned in NYC)
NY tax paid: $12,000
NJ tax on $200,000: $11,500
NJ credit allowed: $11,500 (the lesser amount)
NJ tax due: $0
Total state tax: $12,000 to NY, $0 to NJ
Do NJ Residents Pay NYC Income Tax?
No. This is one of the most common misconceptions.
NYC income tax (3.078% to 3.876%) applies only to NYC residents. If you live in New Jersey and commute to Manhattan, you pay NY State income tax (up to 10.9%) but NOT NYC income tax.
Significant savings: A NYC resident earning $200,000 pays roughly $7,000 more in city tax than a NJ resident with the same income working in the same office.
NJ vs. NY Tax Rates Comparison
2025 State Tax Rate Comparison
Income Level | NY State Rate | NJ Rate | NYC Rate (Residents Only) |
$25,000 | 5.25% | 1.75% | 3.078% |
$100,000 | 6.33% | 5.525% | 3.819% |
$250,000 | 6.85% | 6.37% | 3.876% |
$500,000 | 9.65% | 8.97% | 3.876% |
$1,000,000+ | 10.30% | 10.75% | 3.876% |
Key insight: At lower income levels, NY rates exceed NJ rates, so the NJ credit typically covers your full NJ liability. At very high incomes ($1M+), NJ's top rate exceeds NY's state rate, potentially creating NJ tax due even after the credit.
NY's "Convenience of the Employer" Rule
This rule affects remote workers and can create unexpected tax obligations.
The Rule: If you work remotely from NJ for a NY-based employer for your own convenience (not because the employer requires it), NY may tax that income as if you worked in NY.
When Remote Work Days Are Taxable to NY
You choose to work remotely for personal preference
Your employer allows but doesn't require remote work
You have office space available in NY
When Remote Work Days May Be NJ-Sourced
Your employer requires remote work
There's no NY office space available for you
Remote work is a condition of employment
Important: Document your employer's remote work requirements carefully. Written policies matter if either state questions your allocation.
Common Situations for NJ/NY Commuters
Situation 1: W-2 Employee, All NYC Income
File NY IT-203 reporting your wages
File NJ-1040 reporting the same wages
Claim NJ credit for taxes paid to NY
Usually results in $0 or minimal NJ tax due
Situation 2: NYC Job Plus NJ Investment Income
NY taxes only your NYC wages
NJ taxes worldwide income (wages + investments)
Credit only applies to NY-source income
You may owe NJ tax on investment income
Situation 3: Equity Compensation (RSUs, Stock Options)
Complex sourcing rules apply
Often allocated between NY and NJ based on where you worked during vesting
Professional guidance recommended
Common Mistakes to Avoid
Not filing in both states: Even if you owe nothing to NJ after the credit, you must file a NJ resident return
Forgetting NYC tax doesn't apply: Don't let anyone tell you that you owe NYC income tax as a NJ resident
Ignoring the convenience rule: Don't assume remote work days are automatically NJ-sourced
Not making NJ estimated payments: If you have significant non-NY income, your NYC withholding won't cover your NJ liability
Using generic tax software without state expertise: Multi-state returns are complex and require careful attention
Tax Planning Strategies for NJ/NY Commuters
Maximize pre-tax deductions: 401(k), HSA, and FSA contributions reduce taxable income in both states
Track remote work days: Keep a log of days worked in NJ vs. NY
Consider BAIT if you own a business: May provide additional tax benefits
Plan retirement account withdrawals: NJ offers pension exclusions not available in NY
How Monaco CPA Helps NJ/NY Commuters
Monaco CPA helps NJ residents working in NYC file accurate returns in both states, maximize the NJ credit, navigate remote work tax implications, plan proactively to reduce total state tax burden, and handle audits from either state.
Phone: (862) 320-9554
Email: greg@monacocpa.cpa
Gregory Monaco, CPA, MBA — Livingston, NJ | Serving Essex County, Hudson County, and all of North Jersey
Frequently Asked Questions
Do I have to file a NY return if I only worked there for part of the year?
Yes. If you earned any income in New York, you must file a non-resident return regardless of how long you worked there.
My employer is based in NYC but I work 100% remotely from NJ. Which state taxes my income?
Under NY's "convenience of the employer" rule, your income may still be taxable to NY unless remote work is required by your employer. Document your employer's requirements carefully.
Can I deduct my commuting costs?
Generally, no. Commuting from home to your regular workplace is not deductible for federal or state purposes.
What if I move from NJ to NY (or vice versa) mid-year?
You'll file part-year resident returns in both states, allocating income based on when you were a resident of each.
Is it better to live in NJ or NY if I work in NYC?
It depends on income level, lifestyle, and other factors. NJ residents avoid NYC income tax (3-4%), which means significant savings. But property taxes, schools, and cost of living vary. A comprehensive analysis considers all factors.
Last updated: December 2025. Tax laws change frequently. Consult with a qualified CPA for advice specific to your situation.
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