Are Union Dues Tax Deductible in NJ?
Navigate the intricacies of union dues and their tax implications for New Jersey workers. Uncover essential financial insights.
Union dues represent regular payments made by employees to their labor organizations. These payments support various union activities, including collective bargaining, member representation, and administrative costs. Tax deductibility generally refers to an expense that can be subtracted from gross income, thereby lowering the amount of income subject to taxation.
Federal Tax Deductibility of Union Dues
Historically, union dues were deductible for federal income tax purposes as an unreimbursed employee business expense. These expenses fell under the category of miscellaneous itemized deductions, which were deductible only to the extent they exceeded 2% of a taxpayer’s adjusted gross income (AGI). However, the Tax Cuts and Jobs Act (TCJA) of 2017 altered this landscape. The TCJA, enacted on December 22, 2017, suspended the deduction for all miscellaneous itemized deductions subject to the 2% AGI limitation.
This suspension applies to tax years beginning after December 31, 2017, and before January 1, 2026. Consequently, for the tax years 2018 through 2025, employees cannot deduct union dues on their federal income tax returns. The intent behind this legislative change was to simplify the tax code and increase the standard deduction, leading fewer taxpayers to itemize.
New Jersey State Tax Deductibility of Union Dues
New Jersey’s gross income tax system starts with federal adjusted gross income (AGI) as a basis for calculating state taxable income. However, New Jersey applies its own set of deductions and exemptions, which can differ from federal rules. While many states conform closely to federal tax law, New Jersey has specific provisions regarding what expenses are deductible for state income tax purposes on Form NJ-1040.
For New Jersey state income tax, most employee business expenses, including union dues, are not deductible. New Jersey’s tax law does not provide a specific deduction for unreimbursed employee business expenses, unlike the federal system prior to the TCJA. Therefore, if union dues are not deductible on your federal return due to the TCJA changes, they are also not deductible on your New Jersey state income tax return. This aligns with the state’s approach of limiting itemized deductions primarily to those related to medical expenses, certain taxes, and home mortgage interest.
Specific Scenarios and Record Keeping
While union dues are not deductible for employees, a different scenario applies to self-employed individuals. If you are self-employed and pay union dues that are directly related to your trade or business, these dues may be deductible as an ordinary and necessary business expense. For example, a freelance electrician who is a member of a union might deduct their dues as a cost of doing business on Schedule C (Form 1040). This distinction arises because business expenses for self-employed individuals are treated differently from unreimbursed employee expenses.
Regardless of deductibility, maintaining accurate records of all union dues paid is a sound financial practice. These records can include pay stubs showing deductions, union statements, or bank records of payments. Although currently not deductible for most employees, keeping these records is beneficial for personal financial management and could be useful if tax laws change in the future.