In a press conference in early September, New Jersey Governor Christie announced his intention to end a long-standing tax reciprocity agreement with Pennsylvania. This week he reversed course and announced that he would not end the reciprocity agreement.

The agreement, which has been in place since 1977, allows NJ employers with PA resident employees to withhold the PA personal income tax instead of the NJ gross income tax on employee wages. The agreement also allows PA employers to withhold the NJ gross income tax for its employees that are NJ residents.

In February of this year, Governor Christie signed Executive Order 209, authorizing the state’s Treasurer and Attorney General to determine what steps would need to be taken to withdraw from the agreement with PA, as well as the fiscal impact of taking such action. The Governor’s action was taken as the result of a large budget deficit that was created when the NJ legislature failed to enact $250 million of cost savings from public employees’ health insurance.

New Jersey’s Treasurer and Attorney General determined that the reciprocity agreement is a contract between the two states and can be terminated by the Governor without any legislative action. The only stipulation is that the agreement requires 120 days’ notice of intent to terminate.

Until this morning, it appeared that Governor Christie was planning to follow through with terminating the agreement. However, on Tuesday morning he announced that he was able to find $200 million in savings in a public worker union-backed health care bill signed into law on Monday that will help narrow the budget deficit and allow the reciprocity agreement to continue.

We will continue to keep you updated should anything on this topic change in the future.

Contact Kreischer Miller's State and Local Tax Group if you have any questions. 

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