Gov Murphy Reveals Legislation to Change How Remote Workers Are Taxed by Out-of-State Companies

During the COVID-19 pandemic when many people started working from home, remote work opportunities skyrocketed. Remote work seems like it’s here to stay, and Governor Murphy wants to make changes to how out-of-state employers tax New Jersey residents.

The Governor revealed a proposal for bipartisan legislation on September 1st designed to provide relief to New Jersey residents “facing unfair taxation from other states where their employer is based.”

The legislation is designed to confront the longstanding issue of tax credits New Jersey provides to residents who pay taxes to other jurisdictions, which has cost the State billions in foregone revenue, according to the Office of the Governor of New Jersey.

The proposed legislation, according to Governor Murphy, would “promote long-term fiscal stability and provide relief to taxpayers while combatting aggressive taxation from other states and providing grants to incentivize employment in New Jersey.”

“This is an issue that warrants no debate; on both sides of the aisle, we can all agree that we must protect our residents from unfair and inordinate taxation from other states,” said Governor Murphy. “The proposals I’m announcing today, while supporting our hard-working residents in their efforts to dispute such taxation, will help promote employment in New Jersey and counteract lost tax revenue to our neighbors. Amid profound political divisions across the country, I look forward to achieving bipartisan support for legislation that will ensure a fiscally healthier and fairer New Jersey.”

Initially, three proposals were drafted attempting to address the issue of NJ resident taxes paid to other jurisdictions – an issue laid bare at the onset of the pandemic. The Murphy administration filed a U.S. Supreme Court amicus brief in late 2020 in support of New Hampshire’s challenge to a similar situation with Massachusetts. The Supreme Court ultimately declined to take up the case, and the Murphy Administration has been working to develop other forms of relief options since.

Under the first initiative, New Jersey would adopt its own “Convenience of Employer” provision, which would allow the State to tax employees of New Jersey firms if they “work from home” in other states for their own convenience (instead of the employer’s need).

According to the governor, this first initiative would create parity with New York, which has its own provision that it uses to tax New Jersey residents working for New York firms from home (for their own convenience).

Under the second initiative, the State of New Jersey would award tax credits to incentivize New Jersey residents to file legal actions against other states that collect taxes from employees for services performed while physically in New Jersey.

The third initiative would establish a one-time $10 million pilot program that would provide grants to certain businesses that assign their employees to New Jersey locations, “incentivizing job growth and capital investments throughout the state,” according to Governor Murphy.

“Recent actions by neighboring states to add exorbitant congestion fees, on top of what New Jerseyans already pay in other states' taxes, makes the need for this initiative indisputable,” said Senator Joseph Lagana. “New Jersey is already fighting an uphill battle when it comes to drawing back federal tax dollars; we cannot afford to continue losing revenue to neighboring states too. These proposals will help NJ residents reap the full benefits of what our own state has to offer.”

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