New Jersey vs Pennsylvania: Taxes & Take-Home Pay 2026

The reciprocal agreement comes first

New Jersey and Pennsylvania have a reciprocal income tax agreement: employee compensation is taxed only by the state you live in. A Cherry Hill resident who works in Center City pays New Jersey income tax, not Pennsylvania tax, on those wages; an Allentown resident who works in Phillipsburg pays Pennsylvania.

To set it up, New Jersey residents give a Pennsylvania employer Form REV-419EX, and Pennsylvania residents give a New Jersey employer Form NJ-165. If tax was withheld for the wrong state anyway, you file a return in that state to get it refunded. The agreement covers salaries, wages, tips, fees, commissions and bonuses only, not self-employment income or gains.

Philadelphia’s wage tax is not covered

The agreement does not apply to the wage or income tax of Philadelphia or any other Pennsylvania municipality. A New Jersey resident working in Philadelphia pays the nonresident Wage Tax, 3.425% from July 1, 2026, and can claim it on Schedule NJ-COJ. That credit is based on the share of income taxed by the other jurisdiction and cannot exceed your New Jersey tax, so it is not always dollar for dollar.

Worked example: a single New Jersey resident earning $80,000 at a Philadelphia office pays about $2,740 in Philadelphia Wage Tax. Their New Jersey tax before credits is about $2,906. The credit offsets much of the New Jersey tax, and the worker pays the difference to New Jersey. A Pennsylvania resident living outside Philadelphia with the same job pays 3.07% to Pennsylvania ($2,456) plus the same nonresident Wage Tax.

Progressive vs flat: where the lines cross

New Jersey’s rates start at 1.4% and climb to 10.75%, with only a $1,000 personal exemption. Pennsylvania taxes everything at 3.07%. That means New Jersey is cheaper at lower incomes and Pennsylvania wins as income rises. State income tax only (single filer, before local taxes):

Payroll deductions and 401(k) treatment

New Jersey workers pay 0.425% of the first $44,800 for unemployment and workforce funds, plus 0.19% for disability and 0.23% for family leave insurance on the first $171,100. Pennsylvania workers pay 0.07% of all wages for unemployment compensation.

Pre-tax 401(k) contributions reduce New Jersey wages but not Pennsylvania wages. A Pennsylvania resident contributing $24,500 pays Pennsylvania tax on that money now, about $752, and Pennsylvania generally does not tax the distributions after retirement age.

Retirees, homeowners and shoppers

• Retirement income: Pennsylvania generally does not tax pensions, retirement-age 401(k)/IRA distributions or Social Security. New Jersey does not tax Social Security and lets residents aged 62+ exclude up to $100,000 (joint) or $75,000 (single) of pension income if total income is $100,000 or less, with partial exclusions up to $150,000.
• Property tax: New Jersey homeowners and tenants can deduct up to $15,000 of property taxes (tenants count 18% of rent) or take a refundable credit instead. Pennsylvania has no state income tax deduction for property tax.
• Sales tax: 6.625% in New Jersey (half rate in Urban Enterprise Zones and Salem County) vs 6% in Pennsylvania, 8% in Philadelphia and 7% in Allegheny County.

If you move across the river

New Jersey has no separate part-year return: you file Form NJ-1040 for the resident months and, if you had New Jersey-source income afterwards, Form NJ-1040NR. Pennsylvania taxes part-year residents on all income while resident. Give your employer a new withholding form on the day you move, because reciprocity switches which state should be withheld.