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January 21, 2019 | Posted in:

New Jersey Personal Income Tax Changes

New legislation signed into law on July 1, 2018, made several changes to the New Jersey Gross Income Tax Act as part of New Jersey’s fiscal year 2019 budget. The changes include increases in the New Jersey Earned Income Tax Credit and the property tax deduction, and the addition of a new Child and Dependent Care Credit for resident taxpayers.

The law also increased the income tax rate for income over $5 million.

These changes affect the returns that taxpayers will file beginning in tax year 2018.

The Tax Cuts and Jobs Act will reduce federal taxes for millions of taxpayers, with the average family saving more than $1,000 in 2018.

State taxes are another story.

Most states use federal definitions of income – either taxable income or adjusted gross income – as the starting point for determining how to tax their residents. And even though the federal tax overhaul lowered tax rates, increased the child tax credit and doubled the standard deduction, it expanded the amount of income that’s taxable by the federal, mainly by eliminating personal exemptions. At the state level, that could lead to taxing a larger percentage of resident’s income, without the offsetting lower rates and expanded tax credits.

Below are a few of the common changes that will likely affect some New Jersey taxpayers this tax season: 

Earned Income Tax Credit:

In prior years, qualified taxpayers were eligible for the New Jersey Earned Income Tax Credit which was equal to 35% of their Federal EITC. For tax year 2018 this has been increased to 37%. For tax year 2019, it is set to increase to 39%, and for tax year 2020 it is expected to increase to 40%.

Property Tax Deduction:

The property tax deduction reduces your taxable income. Starting tax year 2018, you can deduct your property taxes paid or $15,000, whichever is less. For tax years 2017 and earlier, the maximum deduction was $10,000.

Child and Dependent Care Expenses:

Eligible resident taxpayers with a New Jersey taxable income of $60,000 or less who received the Federal Child and Dependent Care Credit will also be granted a Gross Income Tax Credit from NJ, which is nonrefundable.

This credit is a percentage of the Federal credit received, and that percentage is based off of the New Jersey taxable income.

 

NJ Taxable Income:  Amount of NJ Credit:
 $0-$20,000  50% of Federal EITC
 $20,001-$30,000  40% of Federal EITC
 $30,001-$40,000  30% of Federal EITC
 $40,001-$50,000  20% of Federal EITC
 $50,001-%60,000  10% of Federal EITC

 

Income Tax Rate Increase:

Starting January 1st, 2018, individual income of more than $5 million is taxed at 10.75%, regardless of the taxpayer’s filing status. Starting no later than September 1, 2018, employers must withhold Gross Income Tax at the rate of 15.6% from salaries, wages, etc. paid for services rendered in excess of $5 million over the course of the taxable year. This higher rate allows taxpayers who were affected by the increased tax rate to “catch up” on their withholding for the year since this tax rate is retroactive to the beginning of the year. The Division of Taxation has stated it will not impose interest and penalties for insufficient payment of estimated taxes and withholding that may otherwise be due before September 1, 2018, if the insufficiency is a result of the new tax rate.

 

Tax Amnesty:

New Jersey will offer a 90-day tax amnesty period that will run no later than January 15, 2019. Under the amnesty program, a taxpayer with tax liabilities for returns due on or after February 1, 2009, can pay tax and one-half of the interest due as of November 1, 2018; most penalties and one-half of the interest due will be waived.

 

 

Author: Valentina Efremova

 

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