As commuters work from home, NJ income tax coffers may benefit
People who live in New Jersey but work in New York pay income taxes to the Empire State and get a credit off their Garden State taxes. A similar system applies for people who work in Philadelphia, though not for other places in Pennsylvania.
In 2016, the most recent tax year for which data is available, New Jersey provided $3.4 billion in credits for income taxes paid to other jurisdictions to around 519,500 tax filers. That lowered New Jersey’s tax collections by 23%, from an assessed $14.7 billion before credits to $11.3 billion.
“Boy, we get the short end of the stick because all the money goes to New York, and New Jersey has all the costs,” said Sen. Steve Oroho, R-Sussex. “And in any kind of profit and loss statement, that’s a horrible, horrible thing.”
Now those people are working in New Jersey. Oroho thinks the difference could wind up being hundreds of millions of dollars in tax collections and that the change might outlast the peak of the pandemic.
“In the long term, we see JPMorgan Chase, many different financial or many different companies know that a significant number of their employees will not work in the office setting anymore and many of them may work in satellite offices in New Jersey or may work directly from their home,” he said.
“That could significantly change not only the current picture but certainly be one of the long-term advantages for New Jersey,” Oroho said.
Credits for taxes paid to other jurisdictions averaged 5.4% per year growth over 2012 to 2015, then dropped to 2.1% during 2016, according to the state Treasury Department. The publicly available data doesn’t specific to which out-of-state jurisdiction New Jerseyans paid their income taxes.
“By far New York is where you see the major shift of revenue, from New Jersey to New York,” said John Ficara, director of the state Division of Taxation.
At a Senate budget committee hearing Monday, state Treasurer Elizabeth Maher Muoio said the new emphasis on telecommuting could affect tax collections, mass transit, roads and office space.
“It is worth exploring, especially since we have this new reality where I think many more people, as you mentioned, are going to continue to work from home as this crisis, the restrictions start to lift,” Muoio said. “I think this has shown how much can be done from home offices and remotely.”
Muoio said it would have to be examined. “We certainly don’t want to add to the fiscal pressures of our residents,” she said.
Former state Treasurer David Rousseau told the Assembly Budget Committee it could be significant but that the Legislature or executive branch in negotiations with New York have to make sure the revenues are maximized.
“New Jersey should be getting a windfall of tax revenue right now from people who used to work in New York who are now spending all of their time in New Jersey,” Rousseau said.
The potential financial benefit to the state from such a shift wasn’t included in the revenue modeling that forecasts a $2.7 billion shortfall in tax collections for the current budget and $7.2 billion for the 2021 state budget.
That scenario, which was completed a few weeks ago and presented by the Murphy administration to the Legislature on May 22, also presumes New Jersey’s “stay at home” order remains largely in effect through the end of June. Some economic restrictions have been lifted, and others will change June 15.