Governor Murphy and the NJ Legislature have agreed to a $37.4 billion budget for FYE 2019, thereby averting a government shutdown.  Tax highlights of the budget bill include:

• Individual income tax provisions
  • Increase the limit on deductions for property tax from $10,000 to $15,000.
  • Increase the earned income credit from 35% to 40% of the Federal earned income credit amount. This will start in 2018.
  • Establishes a child and dependent care tax credit for families with incomes under $60,000. The credit will be 10%-50% of the amount of the Federal tax credit, depending on the level of NJ taxable income, beginning in tax year 2018.
  • Increase the top marginal tax rate for individuals with more than $5 million of taxable income from 8.97% to 10.75%, starting with the 2018 income tax return.
  • New Jersey will not allow the new 20% Federal tax deduction for income from pass-through entities.

• Sales tax
  • Tax rate will remain at 6.625%.
  • Short-term housing rentals (such as Airbnb) are now subject to sales tax.
  • Recent U.S. Supreme Court ruling will allow New Jersey and other state to more aggressively tax online sales for companies that have no physical presence in that state.

• New surtaxes
  • Taxes on rideshare apps, as well as on liquid nicotine for e-cigarettes.

• Corporation income tax provisions
  • The top marginal tax rate for corporations with taxable income of over $5 million will increase from 9% to 11.5% over the next two years.  The top tax rate will then decrease to 10.5% after two years and revert to 9% after four years.       These changes will start with tax years beginning on or after January 1, 2018.
  • Corporations will be taxed on their overall profits, rather than those of their NJ-based entities only. New Jersey will now have combined reporting for groups of corporations with common ownership that are engaged in a unitary business, where one company is subject to tax in New Jersey. Also, sales of services will be sourced to the state where the service is being received (market-based sourcing). Both of these tax provisions are effective for tax years beginning on or after January 1, 2019

• New Jersey tax amnesty
  • The NJ Division of Taxation has been authorized to establish a 90 day tax amnesty period that will end no later than January 15, 2019.
  • The program applies to any taxpayers with liabilities that were due on or after February 1, 2009 and prior to September 1, 2017.
  • To receive amnesty, a taxpayer has to make full payment of any tax owed and 50% of any interest due as of November 1, 2018.
  • All previously unfiled returns must be filed during the amnesty period.
  • Amnesty is not available for any taxpayer who at the time of payment is under criminal investigation or any charge for any state tax matter.
  • If the amnesty rules are followed, all penalties and collection fees will be forgiven, with the exception of criminal and civil fraud penalties.

Check back for more details regarding NJ Tax Changes, and read more tax news here.

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