Is Labor Taxable in New Jersey? Services vs. Wages
Unpack New Jersey's taxation of labor. This guide clarifies how earnings and services are taxed and outlines essential provider obligations.
In New Jersey, “labor” can be subject to different tax categories depending on whether it refers to earned income or a service transaction. Earned income, such as wages, is subject to income tax. Services provided by a business or individual may be subject to sales tax under specific conditions.
Taxation of Wages and Salaries in New Jersey
Earned income, such as wages, salaries, commissions, and business profits, is subject to the New Jersey Gross Income Tax (N.J.S.A. 54A:1-1). Both residents and non-residents earning income from New Jersey sources are subject to this tax. Residents are taxed on all income, regardless of where it was earned, while non-residents are only taxed on income sourced within New Jersey. The state employs a graduated tax rate, meaning higher incomes are subject to higher tax rates.
For employees, New Jersey law requires employers to withhold Gross Income Tax from taxable wages. Employers generally remit these withheld taxes quarterly, though some with higher prior year withholdings might be required to remit monthly or even weekly via Electronic Funds Transfer (EFT).
Self-employed individuals pay estimated income taxes on their net profits, similar to employee withholding. Net profits from an unincorporated business are subject to the Gross Income Tax, with allowable deductions for business costs. The New Jersey Gross Income Tax Act also specifies exemptions and deductions that may reduce taxable income.
New Jersey Sales Tax on Services
New Jersey law states that services are not subject to sales tax unless specifically listed as taxable in the statutes. The New Jersey Sales and Use Tax Act (N.J.S.A. 54:32B-3) lists these services. The state sales tax rate is currently 6.625%.
Taxable services include information services, telecommunications services, and landscaping (seeding, sodding, planting, land clearing). Repair and maintenance services for tangible personal property not held for sale are also taxable, as are certain cleaning services like carpet and janitorial cleaning.
Other specific taxable services include storage services for tangible personal property not held for resale, like the rental of safe deposit boxes, and providing space for storage. Certain personal services, such as tanning, massage (unless medically prescribed), and tattooing, are also subject to sales tax. Admission charges for spectator sports, amusement places, and membership fees to health/fitness clubs are taxable as well.
Many services are exempt from sales tax in New Jersey. Professional services like legal, accounting (except for electronic filing charges), and medical services are not taxable. Educational services, most personal care services not explicitly listed as taxable, and certain utility services for residential use are also exempt. Digital services not involving tangible personal property, such as cloud-based Software as a Service (SaaS) or consulting, are also exempt, provided they are not specifically enumerated as taxable digital products.
Obligations for Service Providers
If a service is taxable, the provider has specific responsibilities. Businesses must register with the New Jersey Division of Revenue and Enterprise Services to obtain a sales tax certificate of authority (N.J.S.A. 54:32B-15). This certificate allows collection of sales tax and must be prominently displayed.
Service providers must collect applicable sales tax from customers at the time of sale and remit it to the state on schedule. Most businesses file quarterly sales tax returns. However, those collecting over $30,000 in sales tax annually may be required to make monthly payments. Record-keeping is required for all sales tax transactions, including collected amounts, exemptions, and remittances.
Certain customers or transactions qualify for sales tax exemptions. Government entities, including the State of New Jersey and its agencies, and qualified non-profit organizations are exempt from sales tax on purchases related to their purpose. For these exemptions, the provider must obtain and retain proper documentation, such as an Exempt Organization Certificate (Form ST-5) or proof of a government purchase order.