On July 21, 2023, New Jersey enacted a “Convenience of Employer” rule that is retroactively effective as of January 1, 2023. The new law will apply to nonresidents who have compensation from a “New Jersey employer” unless such services are required by the employer to be performed outside of New Jersey. The new Convenience of Employer rule only applies to employees who are residents of states that also impose such a rule. These states include Arkansas, Connecticut, Delaware, Massachusetts (temporarily), Nebraska, New York, and Pennsylvania.
So, in short, employers with primary offices in NJ who have employees who are residents in any of the seven states listed above, and work remotely in their resident state, would have to withhold NJ taxes from the employees’ wages. The employee would then get a tax credit on their resident state tax return for the taxes paid to NJ.
It must be noted however, the bill clarifies that its provisions would not effect any agreements entered into by the Division of Taxation with another state concerning the payment of income taxes by residents and out-of-state workers. State law currently allows the Division of Taxation to enter into agreements with the taxing authorities of another state to exempt New Jersey residents from the payment of income taxes to that state. In other words, employers who are in states with which New Jersey has a reciprocal agreement, like Pennsylvania, are exempt from this new rule.
It is expected that further guidance from the state will be necessary for defining a “New Jersey employer” as a NJ nonresident may spend equal time working for an employer with offices in New Jersey and Pennsylvania.
The bill also establishes a nonrefundable gross income tax credit of $2,000 for individuals who seek from their employer and accept a reassignment from an out-of-state location to a New Jersey location. The bill caps the amount of tax credits that may be awarded to qualified taxpayers at $10 million per state fiscal year.
Additionally, the bill establishes a pilot program, to be administered by the Economic Development Authority, through which the authority will provide grants to businesses to assign New Jersey resident employees to New Jersey locations. A business is eligible for a grant if the business has 25 or more full-time employees and is principally located in another state. The bill caps the sum of all grants awarded in any fiscal year at $25 million and makes an initial one-time appropriation from the General Fund for the grant program.
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