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New Jersey Challenges New York’s Taxing Income of Remote Workers

New Jersey has joined a U.S. Supreme Court battle that could determine whether remote workers who are no longer commuting into the office can have their income taxed by other states.

On Dec. 22, 2020, New Jersey, along with Connecticut, Iowa and Hawaii, submitted an amicus brief in a lawsuit that is challenging the ability to tax non-residents’ income while they have been working from home during the coronavirus pandemic, New Jersey Attorney General Gurbir S. Grewal announced.

The brief urges the Supreme Court to take up a case filed by New Hampshire against Massachusetts in October 2020. New Hampshire filed a federal suit over Massachusetts taxing the income of workers who are working at home instead of in the Bay State each day.

National Issue

Grewal said, “We hope that the Supreme Court will agree to resolve this issue of nationwide importance.”

“This case has a major impact for our state’s bottom line, especially during a pandemic, when unprecedented numbers of employees have been working from home,” said Grewal, adding that taxing New Jersey telecommuters “is unfair and unconstitutional.”

In its brief, New Jersey argues that the tax issue presented in New Hampshire’s case is of “nationwide and pressing importance,” since seven states tax workers based on the location of their office—regardless if those employees have been working remotely.

$1.2B At Stake

Prior to the coronavirus outbreak, nearly a half million New Jerseyans commuted into New York for work. Hundreds of thousands of Garden State residents continue to work from home, however they are still subject to having their incomes taxed by New York.

Since New Jersey provides residents with a dollar-for-dollar tax credit for income taxes paid to New York, ending the interstate taxation could generate between $900 million and $1.2 billion in new revenue annually, according to New Jersey State Treasurer Elizabeth Maher Muoio.

Gov. Phil Murphy pointed out a favorable ruling by the Supreme Court could “help our state address the massive fiscal shortfall caused by COVID-19” and would provide critical property tax relief.

Bipartisan Support

Sens. Steven Oroho and Paul Sarlo as well as Assemblyman Hal Wirths expressed their support for the lawsuit, saying they hope the highest court in the land addresses New York’s “unfair” taxation of workers in New Jersey.

“This is an issue of fairness that will produce substantial tax savings for New Jerseyans. The pandemic has changed the employment landscape in ways that will not change back for many workers and businesses,” Sarlo said. “Many former commuters who are working from home for health reasons during the coronavirus crisis will continue to work completely or primarily from home after the shutdowns end.

“The tax laws should respect the ‘new normal’ for the workplace and the taxpayers should be treated fairly.”

Property Tax Relief

Oroho said, “If our former commuters were no longer taxed by New York, many would pay less in income taxes to New Jersey while supporting property tax relief for the entire state.”

“Hopefully, the Supreme Court rules in our favor,” said Wirths, adding, “A smaller budget deficit is important for every residents’ financial future and economic growth in the state.”

In October 2020, legislation sponsored by Oroho and Sarlo requiring the state treasurer to examine New York’s taxation of New Jersey residents’ income passed the Senate unanimously. The measure is currently pending in the state Assembly.  

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