Generally, when someone works for you and that person is considered to be your employee for Federal income tax purposes, he or she is also your employee for State income tax purposes.
Employee compensation, including salaries, wages, tips, fees, commissions and bonuses are subject to New Jersey gross income tax withholding. In most cases, compensation that is considered wages for Federal income tax purposes is subject to New Jersey withholding. There are, however, benefits which are not subject to Federal withholding that are subject to withholding in New Jersey.
As a New Jersey employer, you are required to withhold New Jersey income tax from wages paid to all New Jersey residents unless you are withholding another jurisdiction's income tax at a rate equal to or greater than New Jersey's rate. You must also withhold New Jersey income tax for nonresident employees physically working in this State. Pennsylvania residents are the only out-of-state residents exempt from New Jersey withholdings. As a result of the Reciprocal Income Tax Agreement between New Jersey and Pennsylvania, compensation earned in New Jersey by a Pennsylvania resident is not subject to New Jersey Gross Income Tax. If you employ a Pennsylvania resident in New Jersey, that employee should complete an Employee's Certificate of Non-residence in New Jersey (Form NJ-165
) and file it with you. Once an employee has provided you with a completed Certificate of Non-residence you must stop withholding New Jersey income tax.
To determine the amount of New Jersey income tax to be withheld from employees' wages, use the withholding tables or percentage methods contained in the New Jersey Gross Income Tax Instructions for Employers (Form NJ-WT
) and Supplemental Withholding Tables (Form NJ-WT Supplemental
Withholding Requirement for Payments to Contractors
Beginning January 1, 2007, any person (other than a governmental entity, a homeowner, or a tenant) who maintains an office or transacts business in New Jersey is required to withhold New Jersey gross income tax at the rate of 7% from payments made to unregistered, unincorporated contractors for services performed in this State. See Withholding Requirements for Construction Contractor Services