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.

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