Identification
Pennsylvania has a reciprocal tax agreement with Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. The state of New Jersey has a reciprocal tax agreement with only Pennsylvania. A reciprocal agreement means that both states mutually agree that employees should pay income tax to their resident state rather than their work state. Provided you submit the proper form, if you have an employer, he is responsible for making the appropriate withholding from your paychecks and submitting your payments to your home state’s taxation department. A reciprocal tax agreement applies to salaries, wages, commissions, bonuses, tips, fees and other compensation for services rendered.
Determination
Since New Jersey and Pennsylvania have a reciprocal tax agreement, if you live in New Jersey and work in Pennsylvania, you should pay New Jersey income tax to the New Jersey Department of Treasury, Division of Taxation. If you lived in Pennsylvania and worked in New Jersey, you would pay Pennsylvania income tax to the Pennsylvania Department of Revenue.
Actually, I was wrong and you were right, you would not pay NJ income tax, just PA income tax.
Both my employer and my residence are in Pennsylvania, yet NJ bombs me with tax return packages every January.
The only thing I can figure is that somehow my employers payroll service coded me incorrectly some years back. Never lived in Jersey; never worked for anybody there.
I live in PA and pay income tax on NJ source income too. Basically, you get credit on your PA taxes for the tax you pay in NJ but you will end up paying NJ taxes so you will pay the higher rate.