If you live in New Jersey, you may have heard that Governor Murphy’s fiscal 2021 budget includes a new “millionaires tax” to combat the growing budget deficit created by the COVID-19 pandemic. But you may not know how – or even if – the new budget affects your tax obligations.
Grassi’s Private Client Services group breaks down the major areas of impact on New Jersey’s high-net-worth residents and business owners.
Under the new legislation, New Jersey’s highest personal income tax bracket, which previously started at $5 million of income, will apply to taxpayers with incomes of $1 million or more. This means if your income is between $1 million and $5 million, you will see your rate increase from 8.97 to 10.75 percent. Income received before November 1, 2020 will not be subject to any penalties for underpayments of tax that are attributable to the increased rate.
Likewise, employers will not be subject to penalties or interest for insufficient withholding of wages paid before November 1, 2020 if it is attributable to the rate change. As of November 1, if not before, employers should begin to withhold 21.3% of compensation paid to employees between $1 million and $5 million to account for the rate increase.
Business owners should also be aware of changes to the corporation business tax (CBT) surtax made in this legislation. Corporate taxpayers (except public utilities) with allocated taxable net income of more than $1 million will be subject to a 2.5% CBT surtax rate (previously 1.5%) for tax years beginning on or after January 1, 2020. This surtax was scheduled to expire after December 31, 2021 but will now be in effect until December 31, 2023.
The results of the presidential election could change the CBT surtax yet again. The new NJ legislation allows for a suspension of the surtax at the end of a taxpayer’s current tax period if the federal corporate income tax rate is increased to the pre-TCJA (Tax Cuts and Jobs Act) level.
If you have any questions about how these changes affect your specific tax situation, please reach out to your Grassi advisor or contact Michael Hochman, NJ Market Leader, or Rozleen Giwani, Tax Partner in Grassi’s Private Client Services group.