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You will need to file a PA-40 Income Tax Return. Be sure to indicate your residency status as "nonresident". DO NOT list your compensation on the tax return. The only figure you will enter on the return is the amount of PA State Tax withheld by your employer. This same figure is entered on lines 13, 24, 28 and 29. Submit a legible photocopy of your Form W-2, and a SIGNED COPY of the resident income tax return that you filed/will file with your resident state (without the supporting forms and schedules), and a statement explaining that you were a resident of a reciprocal agreement state.
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Thanks for the clarity of your answer. Only other issue pertains to the W-2 whereby PA state income and tax withheld are listed. Do I need to provide as additional form w-2 on the federal 1040? Reason being when I enter the figures my Nj refund becomes a significant payment due. I am figuring I need not include this on the Federal 1040.
With reciprocal state arrangement- you pay state tax in the state of your residence. Since you are going to file for a refund for PA State tax based on the reciprocal state agreement- your entire income will be subject to NJ State tax. Also, you cannot claim credit for tax paid to other State. Hence, if you do not have sufficient tax withholding on NJ State than you may end up paying taxes in NJ State.