A client lives in New Jersey and commutes to an office in New York. Another lives in New York and reports to an employer in New Jersey. A third lives in Connecticut and spends a few days a month at her company’s New York office. Each asks the same question at the first meeting: Do I really have to file in both states?
Yes. No two of New York, New Jersey, and Connecticut have a reciprocal agreement. New Jersey has exactly one, with Pennsylvania, and in the Division of Taxation’s words it “covers compensation only.” New York and Connecticut have none. A client who lives in one of the three and earns in another ordinarily files in both, and the relief is a credit on the resident return, never an exemption on the nonresident one. From there, the three states part company in ways that are easy to miss.
Two returns, and the credit lives on the resident return
The spine is the same in all three states. The resident is taxed on everything: Tax Law Sections 601, 611, and 612 start a New York resident from federal adjusted gross income, N.J.S.A. 54A:2-1 taxes the New Jersey gross income “of every individual,” and Conn. Gen. Stat. Section 12-700(a) reaches a resident’s Connecticut taxable income, itself built from federal adjusted gross income. The nonresident is taxed on source income under Section 601(e), 54A:2-1.1 and Section 12-700(b).
The credit sits in the resident statute. New York’s Section 620(a) allows it for tax “upon income both derived therefrom and subject to tax under this article,” on Form IT-112-R. New Jersey’s 54A:4-1(a) requires only income “which is also subject to tax under this act,” on Schedule NJ-COJ. Connecticut’s Section 12-704(a)(1) requires income “derived from sources therein and which is also subject to tax under this chapter,” on Schedule 2 of Form CT-1040. Nothing on Form IT-203, NJ-1040NR, or CT-1040NR/PY credits tax paid at home.
That fixes the order of preparation: the nonresident return first. New Jersey’s instructions name the other state’s form, because Schedule NJ-COJ line 1 “must reflect the ‘New York State Amount’ actually taxed by New York from the New York IT-203.” Connecticut goes further: “Attach a copy of all income tax returns filed with qualifying jurisdictions to your Connecticut income tax return or the credit will be disallowed.”
The nonresident return is not the easy one
Clients expect the nonresident return to tax a slice of their income and ignore the rest. All three states instead compute the tax as if the client were a resident and then prorate it. New York’s Section 601(e) multiplies a tax base computed “as if such nonresident or part-year resident individual, estate or trust were a resident” by the New York source fraction, and New Jersey’s 54A:2-1.1 does the same. Connecticut’s instructions: “Nonresidents or part-year residents must calculate the tax in the same manner as resident individuals. Then, nonresidents or part-year residents prorate the tax.” Out-of-state income sets the rate even though it is not taxed.
The credit is capped from the other direction. Each state limits it to the proportion of the home-state tax that the income taxed by the other state bears to total income: Section 620(c)(1), 54A:4-1(b), and Section 12-704(a)(2). New York and Connecticut add a floor. New Jersey does not, but its instructions say it plainly: “It is not necessarily a dollar-for-dollar credit.”
As an illustration, take a New Jersey resident with $100,000 of wages from an office in New York and $25,000 of net profit from a business run entirely in New Jersey. New Jersey taxes $125,000. New York taxes the $100,000, at a rate set by the full $125,000. New Jersey’s credit cannot exceed 80 percent of the New Jersey tax, the share of the client’s income that New York taxed. If New York’s tax on the wages is higher than that ceiling, the excess goes unrelieved.
The six pairings do not mirror each other
Swap the states and the forms swap with them, but three things do not.
Connecticut has a presence threshold. Under Section 12-711(b)(2)(A), compensation for services rendered in Connecticut by a nonresident employee “who is present in this state for not more than fifteen days during a taxable year shall not constitute income derived from sources within this state.” One day over, and “all compensation” for services rendered in Connecticut that year is Connecticut source income. The count is presence, not work, and “presence in this state for any part of a day constitutes being present in this state for that entire day unless such presence is solely for the purpose of transit through this state.” New York has no counterpart, so a Connecticut resident’s 10 days at a New York office are New York source wages from the first. The threshold reaches only employees; a business owner is inside Connecticut’s sourcing rule from day one.
New York’s credit carries a dual-residency denial. The IT-112-R instructions: “You cannot claim this credit if: you are a resident of New York State for personal income tax purposes, and a resident of another state for income tax purposes under its law, and the other state allows a credit against its tax for the total resident tax paid to New York State.” Connecticut states a similar bar at Section 12-704(c); New Jersey has none.
The entity matters as much as the state line. New Jersey’s 54A:4-1(c): “No credit shall be allowed against the tax otherwise due under this act for the amount of any income tax or wage tax imposed for the taxable year on S corporation income allocated to this State.” A sole proprietor’s net profits are not on the exclusion list, so the same New Jersey resident can be denied part of the credit as an S corporation shareholder and allowed it as a proprietor, with the same customers.
Recognition of the federal S election is three different defaults. Apart from a deemed election for corporations with mostly investment income, a federal election does not make a New York S corporation; the shareholders elect under Tax Law Section 660(a) on Form CT-6, and every shareholder must consent. New Jersey runs the other way: a federal S corporation doing business there “that does not make this election to opt out will be taxed as a New Jersey S corporation.” Connecticut asks nothing; Section 12-701(a)(17) defines an S corporation as “any corporation which is an S corporation for federal income tax purposes.” And where an elective pass-through entity tax was paid, which all three states now have, the owner’s resident credit moves to a different provision with its own conditions.
Working from home: Two questions, three answers
New York’s convenience-of-the-employer rule is one sentence of regulation. Under 20 NYCRR 132.18(a), a nonresident’s allowance for days worked outside New York “must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the service of his employer.” TSB-M-06(5)I confines it to an employee whose primary office is in New York and excuses a home day only where the home office is a “bona fide employer office.”
New Jersey and Connecticut have each written a rule that borrows the home state’s test, on different dates. New Jersey’s 54A:5-8(e), added by P.L.2023, c.125 for tax years beginning on or after Jan. 1, 2023, reaches a nonresident whose home state has a convenience test; “New Jersey does not have its own Convenience of the Employer Rule,” the Division says. Connecticut’s Section 12-711(b)(2)(C), applicable to tax years beginning on or after Jan. 1, 2019, includes “income from days worked outside this state for such person’s convenience if such person’s state of domicile uses a similar test,” and the Department of Revenue Services has said it will apply New York’s test to a New York resident telecommuting for a Connecticut employer.
Two questions follow: does the work state tax the home days, and does the home state give the tax back? Two combinations come out whole. A New Jersey resident with a New York office is taxed by New York on the home days and credited by New Jersey, because 54A:4-1(a) asks only that the income also be taxed by New Jersey. A Connecticut resident in the same position is credited too; the CT-1040 instructions define qualifying income to include compensation “for personal services performed from a home office in Connecticut for an employer in a qualifying jurisdiction that applies a convenience of the employer test.”
The reverse commute is unsettled. A New York resident taxed by New Jersey or Connecticut on days worked at home in New York has no department guidance on whether Form IT-112-R reaches that tax. The Tax Appeals Tribunal said in 2001, in dicta in its first Zelinsky decision (Zelinsky v. Commissioner of Taxation and Finance), that New York would source such days to the employer’s state for credit purposes; 20 NYCRR 120.4(d), which allows the credit for “compensation for personal services performed in the other jurisdiction,” reads the other way; and neither the Tribunal’s 2025 decision nor the Appellate Division’s July 2026 decision confirming it repeats or rejects the 2001 passage. A claimed credit is a position to document, not a settled result. Whether Connecticut’s rule reaches a New Jersey resident at all, when New Jersey has no test of its own, is open as well.
A checklist for the first meeting
- Fix the resident state first, then prepare the nonresident return before the resident one.
- For Connecticut work, count days present rather than days worked, and count a partial day as a day.
- Ask what the entity is, whether Form CT-6 was filed, whether the corporation opted out in New Jersey, and whether the entity paid a pass-through entity tax.
- For home days, write down the primary office, the home state, and the work state before applying any rule.
- Model the credit cap. A credit limited to a proportion of the home tax leaves a residue whenever the work state’s tax is the higher one.
The three states share a structure and almost nothing else. Start from where the client lives, build the nonresident return first, and read each state’s credit in its own words.
ABOUT THE AUTHOR:
Myung Keon Kim, CPA, is the owner of Myung Keon Kim CPA, a tax and accounting practice in New York serving small businesses and individuals in New York, New Jersey, and Connecticut, in English and Korean. Kim also holds the CPIM designation in planning and inventory management. Learn more at https://keonadvisory.com.
Photo credit: Freepik
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Tags: connecticut, new jersey, New York state, state taxes, Taxes
