Personal income taxes

Taxable income

How is taxable personal income determined in your state?

New Jersey does not use federal taxable income as a starting point for the New Jersey gross income tax. Instead, a taxpayer’s New Jersey gross income consists of categories of income. The categories that generally comprise gross income include:

  • salaries, wages, tips, fees, commissions, bonuses, and other remuneration received for services rendered;
  • net income from the operation of a business or profession;
  • net gains from the disposition of property;
  • income from rents, royalties, patents, and copyrights;
  • interest income;
  • dividend income;
  • income from trusts and estates;
  • prizes and awards;
  • partnership and S corporation income;
  • alimony payments; and
  • income and gain from acts or omissions defined as crimes or offenses under New Jersey law (N.J. Stat. Ann. § 54A:5-1(a)–(p)).

New Jersey also specifically requires taxpayers to exclude certain items from gross income, including:

  • Federal Social Security benefit payments;
  • Railroad Retirement Act payments;
  • employee death benefits paid by or on behalf of an employer;
  • gifts and inheritances;
  • compensation for injuries or sickness;
  • scholarship and fellowship grants; and
  • gain from the sale of a principal residence of up to $250,000 (N.J. Stat. Ann. §§ 54A:6-1–54A:6-31).

Tax residence

Under what circumstances is an individual deemed resident in your state for personal income tax purposes?

A person is deemed a resident if:

  • they are domiciled in New Jersey, unless they:
    • maintain no permanent place of abode in New Jersey;
    • maintain a permanent place of abode elsewhere; and
    • spend no more than thirty days of the year in New Jersey; or
  • they maintain a permanent place of abode in New Jersey and spend more than 183 days of the taxable year in New Jersey (N.J. Stat. Ann. § 54A:1-2(m)).

Rates

What are the applicable personal income tax rates?

See the tables below for the 2018 tax rates (N.J. Stat. Ann. § 54A:2-1(a)(6), (b)(6)).

Filing as an individual

Tax bracket

Tax rate

Less than $20,000

1.4%

$20,000 to $35,000

1.75%

$35,000 to $40,000

3.5%

$40,000 to $75,000

5.525%

$75,000 to $500,000

6.37%

$500,000 to $5 million

8.97%

More than $5 million

10.75%

Married couples filing jointly                                                                    

Tax bracket

Tax rate

Less than $20,000

1.4%

$20,000 to $50,000

1.75%

$50,000 to $70,000

2.45%

$70,000 to $80,000

3.5%

$80,000 to $150,000

5.525%

$150,000 to $500,000

6.37%

$500,000 to $5 million

8.97%

More than $5 million

10.75%

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

Exemptions

Individuals are allowed a personal exemption against their gross income of $1,000, as well as the following additional exemptions:

  • $1,000 for a spouse or domestic partner that does not file separately;
  • $1,500 for each dependent of the taxpayer for federal income tax purposes;
  • $1,000 if the taxpayer is 65 years of age or over;
  • $1,000 if the taxpayer is blind or disabled;
  • $1,000 if the taxpayer has a blind or disabled spouse;
  • $3,000 if the taxpayer is a veteran who was honorably discharged; and
  • $1,000 for each dependent that is attending a post-secondary institution of education full time and for whom the taxpayer pays one-half or more of the costs (N.J. Stat. Ann. §§ 54A:3-1–54A:3-1.1).

Deductions

New Jersey does not provide for a standard deduction. Deductions available to a taxpayer in New Jersey include those for:

  • alimony payments that are included as income in the return of a current or former spouse;
  • medical expenses that exceed 2% of a taxpayer’s gross income;
  • qualified contributions for a medical savings account;
  • the health insurance costs of self-employed individuals;
  • qualified conservation contributions;
  • the qualified receipts of a taxpayer providing primary care in a Health Enterprise Zone; and
  • property taxes (up to $15,000) (N.J. Stat. Ann. §§ 54A:3-2–54A:3-9, 54A:3A-17).

Further, for taxpayers with losses in certain business-related categories of income, an adjustment to taxable income may be calculated as described in N.J. Stat. Ann. § 54A:3-9.

Credits

Available credits include:

  • credits for income taxes paid to another state or country;
  • credit for taxes withheld and paid by an S corporation;
  • New Jersey Earned Income Tax Credit;
  • Angel Investor Credit;
  • Sheltered Workshop Tax Credit;
  • Property Tax Credit (for qualifying taxpayers);
  • Veteran Care Credit;
  • Child and Dependent Care Credit; and
  • Film Production and Digital Media Credit (N.J. Stat. Ann. §§ 54A:4-1–54A:4-16).

Filing requirements

What filing requirements and procedures apply?

Individuals must file Form NJ-1040 (or NJ-1040 NR for non-residents) annually (N.J. Stat. Ann. § 54A:8-1). For calendar year taxpayers, the filing deadline is on or before April 15 following the close of the calendar year; for fiscal year taxpayers, the filing deadline is on or before the 15th day of the fourth month after the close of the taxpayer’s fiscal year (N.J. Stat. Ann. § 54A:8-1). Taxpayers must make estimated tax payments in four installments of 25% of the total estimated tax due for the tax year (N.J. Stat. Ann. §§ 54A:8-4, 54A:8‑5). Taxpayers may file their returns and make payments electronically, but are not required to do so (N.J. Admin. Code § 18:35-6.4).

Employer obligations

What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?

Every employer maintaining an office or transacting business in New Jersey and making payments subject to New Jersey personal income tax must deduct and withhold from such wages for each payroll period an amount that is calculated “as far as practicable” to be substantially equivalent to the tax reasonably estimated to be due from the inclusion of those wages in the employee’s New Jersey income (N.J. Stat. Ann. § 54A:7-1(a)). A New Jersey employer is responsible for withholding from both residents and non-resident employees (N.J. Stat. Ann. § 54A:7-1(a)).

Every employer required to withhold and deduct tax from an employee’s wages must file a withholding return on or before the 15th day of each month and pay over to the director of the New Jersey Division of Taxation the tax required to be deducted and withheld (N.J. Stat. Ann. § 54A:7-4). Every employer required to withhold tax from the wages of an employee must furnish to such employee a written statement showing the amount of wages paid by the employer and the amounts withheld by the employer (N.J. Stat. Ann. § 54A:7-2(a)). The employer is liable for taxes required to be deducted and withheld from an employee’s wages (N.J. Stat. Ann. § 54A:7-5).

Click here to view the full article.