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General Withholding Requirement: New Jersey gross income tax generally must be withheld from wages paid to resident employees for services performed either within or without the state and from wages paid to nonresident employees for services performed in the state.owever, when resident employees perform all their services outside the state, their wages are subject to New Jersey withholding only to the extent the New Jersey tax exceeds the other state's withholding tax on the same wages.
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.f 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.