On October 14, New Jersey Governor Chris Christie signed into law important new tax legislation. The new law increases the gas tax in New Jersey by 23 cents per gallon. While the gas tax hike aims to increase the revenue paid to the state, the law also includes provisions that are designed to reduce taxes for New Jersey residents.
Those who live in New Jersey are likely aware that the state is currently one of only two states that still imposes both an estate tax and an inheritance tax at death (Maryland is the other). The inheritance tax applies only if property passes at death to individuals other than a spouse, child, grandchild or more remote descendant. On the other hand, the New Jersey estate tax applies to any New Jersey resident having an estate valued at more than $675,000. The estate tax applies to all transfers on death other than to spouses and charities. The new law phases out the estate tax but does not affect the inheritance tax.
For any New Jersey resident who dies in 2017, the first $2 million of the estate will now pass estate tax-free, rather than only the first $675,000. For deaths occurring on or after January 1, 2018, there will no longer be a New Jersey estate tax imposed. This change in the law will provide significant savings to the families of New Jersey residents who, prior to this change, may have considered moving to a state that has lower or no income taxes and/or no estate or inheritance tax at death (such as Florida).
Prior versions of the bill included the taxing of New Jersey nonresidents on any real property located in the state (such as a vacation home at the New Jersey shore), but that provision was not included in the law as it was adopted. Accordingly, New Jersey real property owned by a nonresident will continue to pass free of estate tax in New Jersey but may be subject to an inheritance or estate tax in the owner’s state of domicile.
The new law also increases the amount of retirement income that is excluded from New Jersey income tax. For 2016, married couples who file their income taxes jointly may exclude up to $20,000 of their retirement income ($15,000 for unmarried individuals) if their total gross income is $100,000 or less and they are 62 years of age or older. This exclusion also applies to any individual under age 62 who receives federal Social Security payments as a result of a disability. Over the next four years, the amount of retirement income that may be excluded will increase so that, beginning in 2020, married couples filing jointly may exclude from New Jersey income taxation up to $100,000 of their retirement income ($75,000 for unmarried individuals).
The new law also provides an additional benefit beginning next year with respect to the New Jersey sales tax. The sales tax will initially decrease from 7 percent to 6.875 percent in 2017 and then, beginning on January 1, 2018, the sales tax will be 6.625 percent.
While the beleaguered New Jersey taxpayer may have given further consideration to a move to another state upon hearing of the gas tax increase, the repeal of the New Jersey estate tax, the increase in the retirement income exclusion amount, and the decrease in the sales tax should give New Jersey residents some comfort in staying where they are at least for the time being.
Compliments of Pepper Hamilton – a member of the EACCNY