Credit for lcoal taxes paid to another state on NJ-1040

[therlinger]

Taxpayer is full-year NJ resident but had a W-2 for wages earned in PA.  PA income and Philadelphia local taxes were withheld from employer.  I am filing a NJ resident tax return and PA-40 as a non-resident to get a refund of the PA income taxes withheld.  I am trying to get a credit for the local taxes paid to Philadelphia on the NJ return but the form will not populate.  I called Lacerte support and was told the Sch NJ-COJ will not populate as a credit for the local tax withheld is not applicable to compensation.  Is this correct or am I reading the instructions incorrectly because I think the taxpayer is allowed the credit.  Is there any form (NJ or PA) that should be filed with Philadelphia?  Thanks!

[sjrcpa]

Assuming the correct Philly tax was withheld, nothing needs to be filed with Philadelphia.

[therlinger]

Thanks!

[Accountant-Man]

The NJ COJ will not populate automatically, you have to enter everything from the W2.

Be aware the NJ wages box 16 might not equal Philly wages. Philly taxes everything and NJ defers 401k contributions but not 403b contributions. The amount to claim the credit might be lower than Philly wages; therefore the Philly tax withheld must be pro rated.

NJ also taxes the pre-tax medical, but the allows it to be added to other medical expenses on the NJ medical deduction worksheet.

pa NJ's tax credit law works for Philly wages tax but not PA. NJ's laws says "taxes paid to other jurisdictions." It doesn't say "paid to other states."

NJ and PA have a tax compact, which is why one state's employers do not withhold the other state's taxes.