New Jersey enacted legislation:
– increasing taxes on multi-millionaires.
– closing the “carried interest loophole;”
– increasing the maximum deduction for homestead property taxes paid from $10,000 to $15,000;
– increasing the Earned Income Tax Credit from 35% to 40% of the federal earned income tax credit over the next three years; and
– establishing a new nonrefundable child and dependent care tax credit;
Multi-Millionaires Tax Increase
After January 1, 2018 the tax rate on income over $5 million is:
– for married individuals filing a joint return and individuals filing as head of household or as surviving spouse, $431,457.50 plus 10.75% of the excess over $5 million; and
– for married individuals filing separately, unmarried 32 individuals other than individuals filing as head of household or as 33 a surviving spouse, $433,373.75 plus 10.75% of the excess over $5 million.
Withholding on income in excess of $5,000,000 must be at the rate of 15.6% as soon as practicable, but no later than September 1, 2018.
Carried Interest Loophole
The “carried interest loophole” change takes effect after Connecticut, New York, and Massachusetts enact legislation with an identical effect. The change will expire if New Jersey determines that the United States has enacted legislation having an identical effect.
There will be an additional 17% surtax on income received from investment management services.
“Investment management services” means providing a substantial quantity of any of the following services to a partnership, S corporation, or other entity as a partner:
– advising as to the advisability of investing in, purchasing, or selling a specified asset;
– managing, acquiring, or disposing of a specified asset;
– arranging financing with respect to acquiring specified assets; or
– any activity in support of the above services.
Child and Dependent Care Credit
The new child and dependent care credit is available to residents with taxable income under $60,000. The taxpayer must be allowed a credit under IRC Sec. 21 for household and dependent care expenses. The amount of the credit is a percentage of the federal credit:
– 50% if New Jersey income under $20,000;
– 40%, if New Jersey income between $20,000 and $30,000;
– 30%, if New Jersey income between $30,000 and $40,000;
– 20%, if New Jersey income between $40,000 and $50,000; and
– 10% if New Jersey income between $50,000 and $60,000.
The credit cannot be over $500 for employment-related expenses for one qualifying individual and $1,000 for employment-related expenses paid by the taxpayer for two or more qualifying individuals.
Earned Income Tax Credit
The earned income tax credit is:
– 37% of the federal credit in 2018;
– 39% of the federal credit in 2019; and
– 40% of the federal credit in 2020.
Subscribers can view the text of the bill.
Ch. 45 (A.B. 3088), Laws 2018, effective July 1, 2018