Two returns, one paycheck
New York taxes nonresidents on income from New York sources, and wages for work done in New York are the biggest one. New Jersey taxes its residents on all of their income, wherever it is earned. To keep the same paycheck from being taxed twice, your home state gives the credit. Each year you file:
- Form IT-203, the New York nonresident return, which taxes your New York wages.
- Form NJ-1040 with Schedule NJ-COJ, which taxes everything and then credits the New York tax.
Which wages New York taxes
If you work every day in New York, all of your wages are New York income. If you also work somewhere else, your wages are split by days: days worked in New York divided by total days worked. Weekends, holidays, vacation and sick days are left out of both numbers. The split is done on Form IT-203-B.
Working from home is where people get caught. Under New York’s convenience of the employer rule, a day you work at home in New Jersey for a New York employer still counts as a New York day, unless the work had to be done outside New York because of the employer’s necessity, not your convenience. A home office escapes the rule only if it passes New York’s strict bona fide employer office test, and most do not. New York courts keep upholding the rule, most recently in a July 2026 appellate decision. In practice, New Jersey has generally allowed its residents a credit for New York tax on those days, so the cost is usually the difference between the two states’ tax, not double tax.
Days you work outside New York because the job requires it, such as at a client’s office in New Jersey, are not New York days. Keep a calendar. It is the proof.
How New York computes the tax
New York does not simply apply its rates to your New York wages. The IT-203 first computes the tax as if you lived in New York all year, on all of your income, and then multiplies that by the share of your income that comes from New York. Your interest, dividends and a spouse’s New Jersey wages raise the rate New York uses, but New York only collects its share. For 2026, New York cut the rates on its first five brackets by 0.1 point. A single filer pays 5.9% on taxable income from $80,650 to $215,400.
How the New Jersey credit works
The credit on Schedule NJ-COJ is the lesser of two amounts:
- The New York tax you actually owe on the IT-203, after New York’s credits. This is your tax, not what your employer withheld.
- New Jersey’s share of tax on that income: your New Jersey tax multiplied by your New York-taxed income divided by your New Jersey income.
If New York’s tax is higher, the New Jersey tax on your wages goes to zero, and the extra New York tax is simply the cost of working there. If New Jersey’s tax is higher, you pay New Jersey the difference.
New York City
Nonresidents of New York City do not pay city income tax. The city’s tax on nonresident earnings, the commuter tax, ended for New Jersey residents on July 1, 1999. If your pay stub shows New York City tax, ask your payroll department to check your home address.
A worked example
Alexander is single, lives in Fort Lee and works for a Manhattan firm that pays him $100,000. He works from home two days a week by choice, so under the convenience rule all $100,000 is New York income. He also has $3,000 of interest and dividends. To keep the math clean, he takes New York’s $8,000 standard deduction, makes no retirement contributions, and we leave out New Jersey’s property tax deduction.
| New York tax as if a resident, on $95,000 of taxable income | $5,037 |
| New York share of income: $100,000 ÷ $103,000 | 0.9709 |
| New York tax: $5,037 × 0.9709 | $4,890 |
| New Jersey tax on $102,000 of taxable income | $4,371 |
| Credit limit: $4,371 × 97.0874% | $4,244 |
| Credit: the lesser of $4,890 and $4,244 | ($4,244) |
| New Jersey tax due after the credit | $127 |
New York’s tax is $646 more than New Jersey’s share, so the credit stops at $4,244 and the $646 is the cost of working in New York. The $127 left is New Jersey’s tax on his $3,000 of interest and dividends, at his average New Jersey rate of about 4.24%. His employer withheld New York tax, not New Jersey tax, so nothing was withheld against that $127. In total, Alexander pays $5,017 in state income tax.
Why commuters often owe New Jersey
- Income New York does not tax. Interest, dividends, capital gains and a spouse’s New Jersey wages are taxed only by New Jersey, and usually nothing is withheld for them.
- New Jersey income can be higher. New Jersey taxes some things New York and the IRS do not. See how New Jersey differs from federal.
- Stock pay. RSUs and options are split between the states by workdays over the vesting period. Read our RSU and stock options guide.
- The fix is a New Jersey estimated payment, or extra New Jersey withholding if your employer offers it, sized from a projection.
This guide is general information based on the law as of the date above, not advice for your situation. Tax rules change, and the right answer depends on your numbers.