Date: October 23, 2023Attorney: Martin D. Hauptman

New Jersey Discusses Gross Income Tax Credit for Challenging Other State’s Imposition of Convenience of the Employer Rule

The New Jersey Division of Taxation has listed the steps that taxpayers must take to claim a credit for challenging the imposition of another state’s convenience of the employer rule. (Refundable Gross Income Tax Credit for New Jersey Residents Who Successfully Challenge Another State’s Imposition of the Convenience of the Employer Rule, 09/20/2023.)

Qualifications for the credit

In order to qualify for the credit, the taxpayer must:

1. be a New Jersey resident;

2. pay income tax or wage tax to another state;

3. apply for and be denied a refund from the other state on income earned while working remotely in New Jersey;

4. file an appeal of the other state’s assessment in an out-of-state tax court or tribunal;

5. obtain a final judgement in their favor from that tax court or tribunal; and

6. receive a refund from the other state as a result.

The final judgment in the taxpayer’s favor from the other state’s tax court or tribunal must also satisfy the other state’s laws for establishing finality. This includes a New York State Order of Discontinuance issued by their Division of Tax Appeals and a corresponding Joint Stipulation of Discontinuance to verify that a final judgment was obtained by the taxpayer. 

Amended return. The refund from the other state requires an adjustment to New Jersey’s credit for taxes paid to another state and is anticipated to result in additional tax due to New Jersey. The credit provided under the law allows a credit of 50% of the additional tax that is owed to New Jersey. To receive the credit, the taxpayer must submit a copy of the final judgment from the other state’s tax court or tribunal with an amended NJ-1040 reducing the credit for taxes paid to another state. In addition, the taxpayer may include a request for a waiver/abatement of interest and penalties; which the Division will consider and grant on a case-by-case basis. Taxpayers should submit all of the above to the New Jersey Division of Taxation, Gross Income Tax Audit Branch, PO Box 288, Trenton, NJ 08695-0288, attention: Chief.