Since I do taxes only once a year I keep forgetting this: if I live in PA and work in NJ and my employer withholds PA taxes only, do I need to file NJ tax return at all? Or just the PA one?
 
Also, if a PA resident earns 'non-employee compensation' (gets 1099 and not W2) from the NJ based employer, does he have to file NJ return and pay NJ taxes on it too? The NJ instructions say the reciprocal agreement covers wages only and if you are self-employed you must file a NJ nonresident return and report the income received. Does it mean the self-employment income will be taxed by both states?
 
And lastly, how do you pay quarterly estimated EIT? Do I just put a check in the envelope and mail it to the same address where I am sending payment in April or is there a form like for Fed or PA estimated payments?

I'll have to check on the S/E income aspect of your question.

if you only had wages in NJ and live here in pa, you wouldn't need to file in NJ
you should make quarterly payments and yes, you would mail them to the address that you normally send them to. 
 
edited
Your self employment income from NJ is subject to NJ taxes - you'll have to file NJ 1040NR and pay any taxes due based on your SE net income.  (see page 5 of the NJ1040NR instruction booklet - 3rd column, about 1/2 way down)
http://www.state.nj.us/treasury/taxation/pdf/other_forms/tgi-ee/2006/061040nri.pdf 
 
When you do your PA taxes, use schedule G-l(the long form verison) enter the net income taxable to NJ and PA in line f, then enter your NJ tax info in line 4 a and b, ...

So here are a few more questions to clarify the self-employed situation for me:
 
1) A PA resident with self-employment income from NJ files NJ-nonresident form, pays NJ tax and gets credit for those taxes paid to NJ on PA tax form. Correct?
 
2) Where does he pay the quartely estimated payments to? NJ or PA? Logically, I'd say NJ, but won't PA penalize him for not doing the estimates in PA?
 
3) Just to make things more interesting, suppose that self-employed PA resident had no idea that's how things worked and for a few years filed only PA tax returns. Should he file NJ taxes for those years (but then would PA issue him a refund? I doubt it) or just do things correctly from now on?
 
 

lol
 
a lot of what is done in the tax world is based on the honor system (then it becomes the show me system when you get a letter from bob barker to come on down your the next contestant on... lol)
 
estimates - you pay them to where ever you will have a projected bill - fed, state(s) and local.
 
as to past filing, the law notes that you should file in NJ and then file amended returns in PA.  You can (probably will) get hit with Penalties and interest in NJ and probably get interest from PA on the refund.  that is very do-able.

Great :( more work for nothing for me :( Of course it will be me who will have to do all this filing because I already agreed to do his 2006 taxes (he's done them himself in the past but now bought a house and doesn't want to be bothered). I seriously need to rethink my not saying no when friends ask for help with taxes for free. They seem to think as an accountant I should know everything there is to know about taxes! And I end up with more and more "friends" and no free weekends!
 
But I am just curious. He used TurboTax or TaxCut previously do do his taxes. Wouldn't the program let him know the self-employment income is not part of reciprocal agreement? Isn't the program supposed to know these things? Isn't that the point of using it? - that it "knows" the tax laws?

lol -
 
I don't believe the state programs are interactive with each other, but then again i havent' used them in many years.  Their fall back is the instructions for each state. 
 
 
 

OK, thanks! Looks like a busy weekend for me :)
 

don't forget to include a copy of the NJ return with the PA and, if any leftover credit is available, the local too

oh as a heads-up next year could be a nightmare if the Act 1 ballot questions are approved by voters!  you will have to do 1/2 year under old rules and 1/2 year under new rules when doing local returns - isn't this fun.
 
edited
any credit for taxes paid to other states will only apply to the original portion of the EIT.  It will not be allowed for the Act 1 part - I plan to have the Abbott and Castello Who's on First bit playing on an endless loop for next years tax season.