New Jersey Tax Increases Impact More Than Millionaires
The COVID-19 pandemic has created several new challenges for Trenton and Princeton-area business and individual taxpayers. Over the past seven months, various state and local government orders have impacted how and when businesses can operate, including wearing facemasks and various other requirements for customers and employees. While restrictions have eased somewhat since the early days of the pandemic, many regulations continue to pose financial challenges to New Jersey residents. Although federal programs such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) have been essential survival tools for businesses, the Garden State has had to step in and provide support as well. The state support and loss of sales tax revenue and the deficit that resulted were the catalysts for the nearly $33B 2021 budget, signed by Governor Phil Murphy on September 29, 2020. Provisions of the budget bill included the Millionaire’s tax and extended and increased the Corporate Business Tax Surcharge.
Governor Murphy’s budget changes were designed to help New Jersey address the $5.6B deficit. However, these changes place new burdens on taxpayers. Many are asking how these changes will impact them and their situation. To help clients, prospects, and others, Klatzkin has provided a summary of the key details below.
Millionaire’s Tax
Under the recent changes, the highest individual income tax bracket, which had started at $5 million, was changed to $1 million. The change means many New Jersey taxpayers will be assessed roughly a 2% tax increase on income between $1 million and $4.9 million. This income range rate was 8.97% but will increase to 10.75% on account of the change. Since the change is retroactive to January 1, 2020, impacted taxpayers should review their situation immediately to see if they need to make adjustments to comply. The good news is the New Jersey Department of Taxation announced any income received before November 1, 2020, will be exempt from underpayment penalties attributed to the increase. Employers must also start to withhold income tax at the rate of 21.3% from salaries over $1 million but not over $5 million as soon as practical but no later than November 1, 2020. This is to compensate for the retroactive nature of the tax increase.
Corporate Business Tax (CBT) Surcharge
New Jersey businesses could also incur an increase in taxes due to the extension and increase of the CBT surcharge. The change, which was included as part of Assembly Bill 4721, calls for an added tax on C Corporation businesses with New Jersey allocated taxable net income over $1 million. The additional assessment is a 2.5% surtax on income that exceeds $1 million and runs through December 31, 2023. When originally enacted, the surtax was scheduled to decrease from 2% to 1.5% for tax periods beginning January 1, 2020, and was scheduled to sunset on December 31, 2021. This change also applies retroactively to January 1, 2020. The New Jersey Department of Taxation will waive penalties and interest incurred due to the change.
Contact Us
These changes come when many businesses and individuals are dealing with the pandemic’s financial and other challenges. Nevertheless, New Jersey taxpayers should be aware of and take appropriate measures to plan for and/or comply with the changes. In some cases, it could be essential to consult with a qualified tax professional to conduct a state tax review and plan planning to ensure a business and or an individual is in the best position to deal with these late-breaking tax law changes for 2020. If you have questions about the information outlined above or need assistance with another tax or accounting-related issue, Klatzkin can help. For additional information, call us at 609-890-9189 or click here to contact us. We look forward to speaking with you soon.
©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.