In a significant development that could have substantial financial implications for New Jersey, a newly passed bill by the state Legislature seeks to redefine the taxation of income earned by certain residents working for out-of-state businesses.
This legislative maneuver intensifies the ongoing dispute over taxing remote workers employed by out-of-state companies, particularly amidst the COVID-19 pandemic and the surge in telecommuting. The bill in question, S3128, was successfully passed by state lawmakers on Friday, marking a pivotal moment in this tax controversy.
Previously, New Jersey adhered to the principle of taxing income based on the state where it was earned. Consequently, if a New Jersey resident worked in New York, their income would be subject to taxation in New York. To alleviate the burden of potential double taxation on income already taxed by New York, New Jersey provided a tax credit for such workers.
Following the widespread adoption of remote work by thousands of residents during the pandemic, and with an uncertain number of individuals still working from home, New Jersey has sought to ensure it receives its rightful portion.
The bill encountered no opposition as it successfully passed through both chambers of the Legislature on Friday, receiving unanimous support with a vote of 37-0 in the state Senate and 75-0 in the Assembly. The next step for the bill is to secure approval from Governor Phil Murphy.
The proposal introduces a “convenience of the employer test” for residents in states that already apply a similar test, such as New York. Under this provision, New Jersey would have the authority to tax employees of New Jersey-based companies who reside in other states but opt to work remotely from their homes in those states for the sake of convenience.