New Jersey State Tax Overview (2024)

Quick Reference

Tax Structure

State Income Tax: Progressive rates 1.40% to 10.75%

Business Alternative Income Tax (BAIT): Optional entity-level tax for pass-throughs

Sales Tax: 6.625% (clothing and groceries exempt)

Property Tax: Highest average rates in the nation

File Organization

This overview links to detailed files for each topic:

• income-tax.md - NJ income tax brackets and rates (all filing statuses)
• bait.md - Business Alternative Income Tax election
• property-tax.md - Property tax deduction/credit rules, homestead benefit
• retirement-income.md - Pension and retirement income exclusions

Standard Deduction

New Jersey does not have a standard deduction.

Personal exemptions (2024): - Single: $1,000 - Married Filing Jointly: $2,000 - Dependents: $1,500 each - Age 65+: Additional $1,000 - Blind: Additional $1,000

Key Deadlines

Individual Returns: - April 15 (calendar year) - Automatic 6-month extension available (no form required if paid)

Estimated Tax: - April 15, June 15, September 15, January 15

BAIT Elections: - Annual election due with first estimated payment

Details

New Jersey's Progressive Structure

Tax rates vary significantly by income:

Low earners: - 1.40% to 1.75% on income under $20,000 - Minimal tax burden

Middle earners: - 2.45% to 6.37% on income $20,000 to $150,000 - Moderate progressive increase

High earners: - 8.97% on income $500,001 to $1,000,000 (MFJ) - 10.75% on income over $1,000,000 (millionaire's tax)

Millionaire's Tax

Enacted 2004, made permanent:

Rate: 10.75% on income over $1,000,000 (all filing statuses)

Highest rate in region: - NY top rate: 10.90% - NJ top rate: 10.75% - PA top rate: 3.07% (flat) - CT top rate: 6.99%

Impact on high earners: - Significant tax burden for millionaires - Combined with federal (37% + 3.8% NIIT) = over 52% marginal rate - Drives some high earners to move to FL, PA, or other lower-tax states

Multi-State Considerations

Common scenarios:

NJ-NY Commuters: - Work in NY, live in NJ - NJ gives credit for NY tax paid - File both state returns - Watch for convenience of employer rule (NY)

NJ-PA Commuters: - Reciprocal agreement (wages only) - NJ residents working in PA not subject to PA tax - PA residents working in NJ not subject to NJ tax - Still file resident return in home state

Remote Work: - NJ does not have convenience of employer rule (unlike NY) - NJ residents taxed on all income regardless of work location - Nonresidents only taxed on NJ-source income

Residency Rules

Resident defined: - Domiciled in NJ, OR - Maintain permanent home in NJ for substantially entire year (not defined as 183 days like NY)

Domicile factors: - Similar to other states - Location of permanent home - Family location - Business ties - Official documents (license, registration, etc.)

Audit risk: - NJ audits high-income residency changes - Less aggressive than NY and CA - Still requires documentation

Exit Tax (Annual Return Requirement)

NJ imposes annual return requirement on certain individuals changing residency:

Who is subject: - Income over $150,000 - Unrealized gains over $500,000 - Changing residency from NJ to another state

Not an actual tax: - No immediate tax due on unrealized gains - Must file annual NJ return for 2 years after leaving - Ensures NJ captures deferred income

Planning: - File final resident return (Form NJ-1040) - File nonresident returns for next 2 years (if NJ-source income) - Accelerate income recognition before leaving to avoid complexity

BAIT vs. PTET

BAIT (Business Alternative Income Tax): - NJ's version of pass-through entity tax - Similar to NY PTET - Bypasses federal SALT cap - See bait.md for details

Benefits: - Federal deduction (not subject to SALT cap) - Credit to owners on NJ return - No NJ tax increase

Property Tax

Highest in the nation:

Average effective rate: 2.47% (2024)

Some towns over 3.00%: - Wide variation by municipality - School taxes largest component

Relief programs: - Property Tax Deduction (limited) - Property Tax Credit (refundable, income limits) - Senior Freeze Program - Veterans' Deduction - Homestead Benefit (abolished but replaced with credit)

See property-tax.md for full details.

Filing Requirements

Residents: - Must file if gross income exceeds: - Single: $10,000 - Married Filing Jointly: $20,000 - Filing Status determines threshold

Nonresidents: - Must file if any NJ-source income over filing threshold

Part-Year Residents: - File Form NJ-1040NR - Allocate income between resident and nonresident periods

Audit Red Flags

NJ audits focus on:

Residency changes: - High earners moving to FL, PA - Claiming non-residency while maintaining NJ ties - Exit tax compliance

PA reciprocal agreement abuse: - Claiming PA wages exempt under reciprocal agreement - But not actually performing services in PA

Property tax deduction/credit: - Overstating property taxes - Claiming for non-principal residence

Retirement income exclusions: - Ineligible pensions claimed - Exceeding income limits

Citations

New Jersey Statutes: - N.J.S.A. 54A:1-1 et seq. - Gross Income Tax Act - N.J.S.A. 54A:2-1 - Imposition of tax - N.J.S.A. 54A:5-1 - Resident defined - N.J.S.A. 54A:8-8 - Business Alternative Income Tax

Regulations: - N.J.A.C. 18:35-1.1 et seq. - Gross Income Tax Regulations

NJ Division of Taxation: - Technical Bulletins - BAIT (TB-95) - Guidance on residency determination - https://www.state.nj.us/treasury/taxation/

Forms: - NJ-1040 - Resident Income Tax Return - NJ-1040NR - Nonresident Return - NJ-1080 - Business Alternative Income Tax Return - NJ-WT - Employer Withholding Tax Return - Schedule A - Property Tax Deduction/Credit

Reciprocal Agreements: - NJ-PA Reciprocal Agreement (wages only) - https://www.state.nj.us/treasury/taxation/njit11.shtml