What You Need to Know:
The New Jersey Tax Relief Agreement and Funding for The New Jersey Transportation Fund
November 15, 2016
Shapiro Financial Security Group, Inc.
After many months of interparty wrangling that had resulted in a state-wide construction and infrastructure freeze idling more than 1000 projects during the past summer, New Jersey Governor Chris Christie recently signed the bipartisan New Jersey Tax Relief Agreement.
According to NJ.com, Governor Christie praised the tax cuts for making New Jersey more affordable, but budget analysts questioned the financial soundness of the loss of $1.4 billion dollars per year that will impact the state’s ability to fully fund education and public worker pensions. Moody’s Investor Service said that the lost revenue ”equivalent to 2.9 percent of current revenues, will worsen the state’s existing budget challenges.”
The non-partisan Office of Legislative Services finds that the budget will be most impacted by the decrease in the sales tax and by the phase out of the estate tax. Estimated losses by 2021 will be $634 million and $522 million respectively.
The Agreement will:
- Fund the New Jersey Transportation Trust Fund (TTF) by raising the gas tax by 23 cents per gallon, the first increase since 1988.
- Eliminate the estate tax in 2 phases
- Raise the retirement income exclusion
- Increase the Earned Income Tax Credit for the working poor
- Create a tax deduction for veterans
- Decreases the NJ Sales tax three eighths of one percentage point.
According to the New Jersey Society of Certified Public Accountants, the changes can be explained as follows:
- Phasing Out the Estate Tax
New Jersey is one of only two states that has an estate tax and an inheritance tax, and it has the lowest exclusion threshold for the estate tax at $675,000. The agreement calls for a two-step phase out of the estate tax.
- Starting January 1, 2017, the exclusion threshold will be raised to $2 million.
- On January 1, 2018, the estate tax will be completely eliminated.
The agreement also excludes estate taxes for nonresident decedents who own New Jersey property. There are no changes to the inheritance tax included in this agreement.
According to NJ.com, lawmakers from both parties favored this action as they saw the estate tax as forcing homeowners to move to other states to seek tax relief. More than $500 million dollars will be lost annually, but the hope is that that will be offset by retaining residents.
- Increasing Retirement Income Exclusions
The agreement increases the New Jersey gross income tax pension and retirement income exclusions over the next four years for New Jersey taxpayers who are at least 62 years old, retired and have gross income of $100,000 or less.
|
Filer Type |
Present |
2017 |
2018 |
2019 |
2020 |
|
Joint |
$20,000 |
$40,000 |
$60,000 |
$80,000 |
$100,000 |
|
Individual |
$15,000 |
$30,000 |
$50,000 |
$60,000 |
$75,000 |
|
Separate |
$10,000 |
$20,000 |
$30,000 |
$40,000 |
$50,000 |
- Decreasing the Sales and Use Tax
New Jersey's sales and use tax will decrease over the next two years:
- Starting January 1, 2017, the tax will decrease from 7 percent to 6.875 percent.
- On January 1, 2018, it will further decrease to 6.625 percent.
- Adding a New Personal Exemption for Veterans
Beginning in tax year 2016, New Jersey veterans will receive an additional annual personal exemption of $3,000. Eligible veterans include those who have been honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States, a reserve component thereof, or the National Guard of New Jersey in a federal active duty status.
- Increasing the NJ EITC Benefit
Lower-income residents will benefit from an increase in the New Jersey earned income tax credit. The current NJ EITC benefit is equal to 30 percent of the federal EITC. For taxable years beginning on or after January 1, 2016, that increases to 35 percent.
- Increasing the Gas Tax
The New Jersey Transportation Trust Fund, which was bankrupt as of June 2016, will be replenished by $2 billion a year through an increase in the gas tax. To accomplish this, the gas tax will increase by 23 cents starting on November 1, 2016, bringing the total gas tax to 37.5 cents per gallon. The diesel tax will increase 27 cents to a total of 44 cents per gallon. There is a provision in the bill which allows the State Treasurer to adjust the gas tax annually if the target of $2 billion is not met or is exceeded, so the tax can increase or decrease each year depending on revenues collected.
On November 8, 2016, voters passed a referendum that constitutionally dedicates all gas tax revenue for the exclusive use of the Transportation Trust Fund.
