Work in Philly and live in Jersey? You may lose tax break

20160524-Chris-Christie
Gov. Christie is considering withdrawing from an agreement that exempts residents who live in Pennsylvania but work in New Jersey from paying income taxes on their salaries and wages to the Garden State, and vice versa.

Gov. Christie is considering withdrawing from an agreement that exempts residents who live in Pennsylvania but work in New Jersey from paying income taxes on their salaries and wages to the Garden State, and vice versa.

This would effectively amount to a tax hike for many of those who commute across the Delaware River for work - and would be highly unpopular in South Jersey, where tens of thousands of people could be affected.

The proposal was included in an executive order that Christie signed Thursday night, placing millions of dollars in reserve in what he said was a response to a reckless spending proposal submitted by the Legislature, which is controlled by Democrats.

Christie ordered his treasurer to work with the attorney general to "determine the specific steps that would be necessary to withdraw" from the reciprocal income tax agreement between New Jersey and Pennsylvania.

Acting Treasurer Ford Scudder "shall prepare an estimate of the effects such a withdrawal would have on New Jersey's revenue collections," Christie wrote.

South Jersey's top representative in the Legislature, Senate President Stephen Sweeney (D., Gloucester), did not respond to a message seeking comment.

Christie signed the executive order on the same day he blasted the Senate for refusing to hold a vote on a proposed gas tax hike that would provide money for the state's transportation needs.

In a December opinion article for the news website NJ Spotlight, Andrew Sidamon-Eristoff, Christie's former treasurer, said withdrawing from the agreement would generate $180 million annually for New Jersey and a smaller amount for Pennsylvania.

"New Jersey's losses from not being able to tax wealthy Bucks County residents who commute to high-paying jobs in New Jersey far outweigh the taxes New Jersey collects on low- and moderate-income Camden and Gloucester County residents who work in Pennsylvania, typically Philadelphia," Sidamon-Eristoff wrote.

A spokesman for the New Jersey Treasury Department said Friday, "The agreement is being reviewed, so we won't have any further comment beyond the executive order at this point."

In South Jersey, more than 40,000 Camden County residents and around 25,000 residents each of Burlington and Gloucester Counties work in Pennsylvania, according to Census Bureau estimates. A large number of them likely commute to Philadelphia for work.

About 20,000 Philadelphia residents work in New Jersey.

Pennsylvania's income tax rate is a flat 3.07 percent. New Jersey's system, with six income-tax brackets, is progressive.

For example, those who make between $35,000 and $40,000 are taxed at 3.5 percent in New Jersey. The top rate, for those who make more than $500,000 a year, is 8.97 percent.

Thus, if Christie ends the agreement, wealthy Pennsylvanians who work in New Jersey would face a higher tax.

But many in South Jersey who work across the river would also pay more - to Pennsylvania. That's because New Jersey has two tax brackets lower than Pennsylvania's flat rate for those making less than $35,000.

The agreement does not apply to Philadelphia's wage tax, which is 3.47 percent for nonresidents, meaning a New Jersey resident who works in the city can claim a credit for paying the tax.

However, without reciprocity, the New Jersey resident who works in Philadelphia must file a Pennsylvania tax return, and the commonwealth does not allow a credit on the Philadelphia wage tax.

There is no similar reciprocal arrangement between New Jersey and New York. So North Jersey residents who work in New York City pay New York's income tax, not New Jersey's. According to Sidamon-Eristoff, that costs New Jersey about $2 billion in revenues each year.

New Jersey and Pennsylvania entered into the reciprocity agreement in 1977. Under its terms, either state can terminate the agreement "as of the beginning of a calendar year" by giving the other three months' written notice. It does not require a vote of the Legislature.

Previous governors have considered ending the agreement. In 2002, Gov. Jim McGreevey, a Democrat, proposed a budget that assumed revenues from abrogating the agreement.

His plan faced opposition on both sides of the Delaware and ultimately was killed.

The $34.8 billion budget the Legislature sent to Christie included $250 million in public employee and retiree health care savings, as the governor called for in his February budget address.

But the Legislature "did absolutely nothing to embrace, negotiate or achieve" those savings, Christie said late Thursday in a statement accompanying his executive order.

He said the treasurer will monitor the committees that oversee state workers' health plans and "identify the value of estimated health benefits savings achieved by the committees for fiscal year 2017, in addition to the impact that any reforms may have in future fiscal years."

Public employee union representatives on one of the panels, the State Health Benefits Plan Design Committee, said in a statement Friday that they had recommended health-care changes that would save the $250 million Christie is looking for.

The unions also said the executive order was illegal.

aseidman@phillynews.com

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@AndrewSeidman

Staff writer Jonathan Lai contributed to this article.