Reminder: New Jerseyans Working Remotely for Out-of-State Employers May Be Eligible for Gross Income Tax Credit

Residents Must Win Legal Challenge to Taxing of Income by Another State

(TRENTON) – The Division of Taxation is reminding New Jersey residents that they may be eligible for a refundable Gross Income Tax (GIT) credit if they work for an out-of-state employer and win a successful legal challenge to the taxing of income earned while working remotely in New Jersey.

The credit was established under a 2023 law in response to the impact of neighboring states’ “convenience of employer” rules on New Jerseyans working remotely, particularly during the pandemic. The new law offers taxpayers a path to claim a refundable credit equal to 50% of the amount of taxes owed to New Jersey as a result of the readjustment for tax years 2020 through 2023.

“Remote work widely expanded during the pandemic, with many people who used to commute across state lines instead working from home,” said New Jersey State Treasurer Elizabeth Maher Muoio. “Treasury’s Division of Taxation is working diligently to ensure residents and tax preparers are aware of this refundable credit so that those who are eligible can take advantage of it.”

The credit is applicable to Tax Years 2020 to 2023. To qualify, a taxpayer must:

• Be a New Jersey resident;
• Pay income tax or wage tax to another state;
• Apply for and be denied a refund from the other state on income earned while working remotely (e.g., from home) in New Jersey;
• File an appeal of the other state’s tax assessment in an out-of-state tax court or tribunal;
• Obtain a final judgment in their favor from that tax court or tribunal; and
• Receive a refund from the other state as a result.

The refund from the other state requires an adjustment to New Jersey’s credit for taxes paid to another state and will likely result in additional tax due to New Jersey. However, the credit established under the law is equal to 50% of the additional tax that is owed to New Jersey. Since the credit is refundable, the resident can receive the full value, even if the credit reduces New Jersey taxes to below zero. To date, one taxpayer has utilized this program to obtain a refund of over $7,000 from New Jersey, representing a credit of 50% of the additional tax owed to New Jersey as a result of a successful challenge to New York.

To receive the credit, the taxpayer must submit a copy of the final judgment from the other state’s tax court or tribunal with an amended NJ-1040 reducing the credit for taxes paid to another state. The final judgment in the taxpayer’s favor from the other state’s tax court or tribunal must also satisfy the other state’s laws for establishing finality.

In addition, the taxpayer may include a request for a waiver/abatement of interest and penalties, which the Division of Taxation will consider and grant on a case-by-case basis.

Detailed information is available on the Division of Taxation’s website: https://www.nj.gov/treasury/taxation/individuals/refundablegitcredit.shtml