The evolution of remote work continues to affect both employees and employers in the State of New Jersey and beyond. It is imperative that businesses consistently review their payroll tax withholding policies and practices to remain compliant with any new and ongoing legislation. As of July 21, 2023, the State of New Jersey implemented The Convenience of the Employer Rule that will affect payroll tax withholding and reporting.
This new law is retroactive to January 1, 2023 and sources wages of non-resident, NJ-Based employees – to New Jersey, unless services are required by the employer to be performed outside of the State. For example, if an employee lives and works at home in Connecticut for a business located in New Jersey, the income would be sourced to New Jersey. This rule applies only to New Jersey non-residents who reside in states that also have a Convenience of the Employer Rule. These states include Alabama, Connecticut, Delaware, Nebraska, and New York.
This legislation will not apply to Pennsylvania (who has a Convenience of Employer Rule) due to a long-standing reciprocity agreement with New Jersey, as wages are sourced to the employee’s state of residence, regardless whether they work in New Jersey or Pennsylvania.
Other important takeaways include:
This law creates a refundable gross income tax credit for NJ residents who:
- Challenge other states taxed on wages earned for services performed in NJ between 2020 through 2023 and
- receive a refund of taxes paid to another state on the grounds that the income was derived from services performed by the resident taxpayer while within New Jersey.
- There will be additional tax due to New Jersey but also a refundable gross income tax credit equal to 50% of the additional tax due to New Jersey as a result of the readjustment for tax years 2020 through 2023.
This law also provides grants to businesses located outside of New Jersey via a pilot program administered by New Jersey Economic Development Authority. This program will provide grants to out-of-state businesses if they assign their New Jersey resident employees to New Jersey Business locations. The business must have 25 or more full-time employees and be legally domiciled outside of New Jersey. All grant applications must be filed on or before July 1, 2028.
For more information reach out to our HR and Payroll Service Team at Wiss.