New Jersey Enacts Personal and Corporate Tax Rate Increases Retroactive to January 1, 2020

October 1, 2020

New Jersey Enacts Personal and Corporate Tax Rate Increases Retroactive to January 1, 2020

On September 29, 2020, New Jersey Governor Phil Murphy signed into law a budget bill that includes tax rate increases for higher-income individuals and corporations, along with tax rebates/cuts for lower-income individuals.

Individual Tax and Withholding Rates Increased on Individuals With Income Exceeding $1 Million: The New Jersey Gross Income Tax (NJ GIT) rate on individuals with taxable income in excess of $1 million has been increased from 8.97% to 10.75%, retroactive to January 1, 2020. Previously the 10.75% rate kicked in when income of an individual exceeded $5 million. The law provides that an individual who winds up in an estimated tax underpayment situation for the 2020 tax year is not subject to an estimated tax underpayment penalty solely as a result of the retroactive tax increase. For 2020, employers paying cumulative wages to employees in excess of $1 million but less than $5 million are required to begin withholding NJ GIT at the rate of 21.3% as soon as possible and no later than November 1, 2020.

2021 Individual Tax Rebates: The legislation provides that from July through December 2021, resident individual taxpayers will be eligible to receive a $500 tax rebate if: 

  1. they have at least one qualifying child claimed as a dependent on their timely filed 2020 resident income tax return

  2. their 2020 gross income does not exceed $150,000 if filing jointly, as head of household or surviving spouse or $75,000 if filing single or married separately and

  3. their 2020 GIT liability is greater than zero.

The rebate will be limited to the lesser of $500 or their 2020 GIT liability. Also, the funding of rebates must be authorized by the state assembly via legislation.

Corporation Surtax Extended, Made Retroactive to January 1, 2020: In 2018, a 2.5% surtax was enacted on corporations with taxable income in excess of $1 million, thus making the effective tax rate on income in excess of that amount 11.5%. The surtax rate was scheduled to decrease to 1.5% for tax years beginning in 2020 and sunset after 2021. The legislation signed by the Governor retroactively increases the surtax back up to 2.5% for tax years beginning in 2020 and extends it through the end of 2023. Corporate taxpayers that are underpaid on their 2020 NJ CBT liability as a result of the retroactive tax increase will not be subject to underpayment penalties.

If you have any questions, please feel free to contact your tax advisor at Marks Paneth LLP.