Governor Murphy and Legislative Houses Reach Budget Deal Which Includes Corporate and Individual Tax IncreasesJuly 20, 2018
By: Edward Rigby, CPA, MST
On July 1, 2018, Governor Phil Murphy, Senate President Steve Sweeney and Assembly Speaker Craig Coughlin announced that their respective branches of New Jersey’s government had reached a compromise agreement for the fiscal year 2019 state budget. The upcoming fiscal year budget will include certain tax increases as part of the budgeted $37.4 Billion in revenues. Highlights of the tax increases include corporate and individual tax increases.
For individual taxpayers earning over $5 Million, the top New Jersey Gross Income Tax rate will be raised from the current 8.97 percent to 10.75 percent. For corporations with taxable income over $1 Million, there will be a 4-year increase in the corporate tax rate as follows: For the first two years, there will be a surcharge of 2.5 percent applied to the current corporate tax rate of 9 percent. The surcharge will phase down over the remaining two years. New Jersey will have one of the highest corporate tax rates in the country. In addition, the Corporation Business Tax will require combined reporting of affiliated corporations and modification to income sourcing rules for state allocation of service revenue to New Jersey.
Effective October 1, 2018, a new surcharge will apply to prearranged rides provided by transportation network companies (the surcharge will be $0.50 or $0.25 for shared rides). A transportation network company e.g., Uber, uses a digital network to connect a transportation network company rider to a transportation network driver to provide a prearranged ride. This law change does not apply to taxi or limousine companies.
In addition, certain transient accommodations will be subject to sales and local occupancy taxes. Transient space marketplaces such as Airbnb will be required to collect taxes on behalf of lessors. Transient accommodations do not include hotels or private residential property where keys or other access mechanisms are provided to the lessee at the location of a New Jersey licensed real estate broker.
For individual taxpayers, the state deduction for property taxes will be increased from $10,000 to $15,000.
Eligible taxpayers who benefit from the Federal Earned Income Tax Credit will receive an increase in the New Jersey earned income percentage from the current law 35% of the federal credit. The credit will gradually increase to 40% in 2020.
In addition, certain taxpayers will receive a dependent care credit on their New Jersey individual income tax return. To qualify, New Jersey taxable income must be $60,000 or less. The credit is a percentage of the federal credit.
The New Jersey budget agreement will also include a tax amnesty program that will require the Director of the New Jersey Division of Taxation to establish a 90-day amnesty period that shall end no later than January 15, 2019. In general, under the amnesty legislation, taxpayers owing “back taxes” will avoid late payment and late filing penalties and one-half of applicable interest.
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