StateSide

Determination engine

Which state do you actually withhold in?

Reciprocity, convenience-of-the-employer, nonresident thresholds and unemployment localization, applied together to one employee's facts. Every answer cites the state source it came from.

Withhold Pennsylvania income tax.
New Jersey and Pennsylvania have a reciprocal agreement, so the work state stands down once the exemption certificate is on file.
Income tax withheld to
Pennsylvania
Flat 3.07%
Employee certificate
NJ-165
Employee's Certificate of Nonresidence in New Jersey
Unemployment insurance
New Jersey
Localized under factor 1: Localization.
Reciprocal agreement
Yes
New Jersey exempts Pennsylvania residents.
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File NJ-165 with the employer
Reciprocity is not automatic. Until the employee files NJ-165 (Employee's Certificate of Nonresidence in New Jersey) you are legally required to withhold New Jersey tax. Keep the signed form on file; it is not sent to the state.
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Withhold Pennsylvania income tax instead
Under the agreement the employee is taxed only by their state of residence. You will need a Pennsylvania withholding account.
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Reciprocity does not cover New Jersey local taxes
Newark imposes a 1% payroll tax, but it is an EMPLOYER-paid tax on wages, not withheld from employees. New Jersey also has substantial employee-paid state programs withheld through payroll: Unemployment Insurance, Workforce Development, Temporary Disability Insurance and Family Leave Insurance.
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Pennsylvania has local income taxes at the residence
Roughly 2,470 municipalities and 469 school districts levy an Earned Income Tax (EIT) and/or a Local Services Tax (LST), withheld by employers under Act 32. Philadelphia's Wage Tax is separate from the Act 32 system. CRITICAL: the PA/NJ reciprocal agreement does NOT cover the Philadelphia Wage Tax -- New Jersey residents working in Philadelphia still owe it.
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New Jersey paid family and medical leave contributions
New Jersey runs two employee-funded programs: Temporary Disability Insurance at 0.19% and Family Leave Insurance at 0.23% for 2026 (0.42% combined), on employee wages up to $171,100. Employers also pay a TDI contribution (0.10%-0.75% on the $44,800 employer base); employers do not contribute to FLI. Employee contribution: 0.42%. These follow the state of unemployment coverage, not the income tax state.
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New Jersey withholds an employee unemployment contribution
New Jersey withholds employee UI-related contributions for calendar year 2026: 0.3825% for UI plus 0.0425% for the Workforce Development/Supplemental Workforce Funds = 0.425% total, on wages up to $44,800. Employees separately pay 0.19% for Temporary Disability and 0.23% for Family Leave Insurance on wages up to $171,100.
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Employer registrations you will need
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Get the form
NJ-165 — New Jersey (official state source)
New Jersey profile Pennsylvania profile Full write-up for this pair
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This is a determination aid, not advice. StateSide encodes published state rules and applies them mechanically to the facts you enter. It does not know your entity structure, your nexus history, your equity compensation, or the dozens of exceptions that turn a clean rule into a judgement call. Every determination cites the state source it came from — verify against that source, and take anything consequential to a payroll tax professional before you act on it.