By Argi O’Leary
As previously reported, the New Jersey Legislature passed its response to New York’s established “convenience of the employer” rule earlier this summer. Governor Phil Murphy signed bill A4694 last month after advocating for this change since last fall.
Retroactive to January 1, 2023, the New Jersey convenience of the employer law subjects nonresidents assigned to work for New Jersey employers to state income tax withholding. This means that 1) if an employee’s state of residence determines the source of income of nonresidents by a “convenience of the employer test,” and 2) the employee works for a New Jersey employer from a location in the employee’s state of residence for the employee’s own convenience, then 3) the New Jersey employer would be required to include those days as days worked in New Jersey and withhold income tax accordingly. Previously, the wages of nonresidents were only subject to New Jersey income tax if earned while physically present in New Jersey.
The bill also provides for a refundable gross income tax credit. The credit would be available to New Jersey resident taxpayers who 1) obtain a final judgment from another state tax court or tribunal in the resident taxpayer’s favor, which results in 2) the resident taxpayer being refunded taxes paid to that state or jurisdiction 3) on the basis that the income was derived from services rendered while the resident taxpayer was within New Jersey. The credit would be equal to 50% of the amount of the taxes that are owed to New Jersey as a result of the readjustment of New Jersey’s credit for taxes paid to another state.
In addition, the bill establishes a pilot program, to be administered by the Economic Development Authority, through which the authority will provide grants to businesses that 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.
Please contact our Ryan tax professionals with any questions on these changes.
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