Is Labor Taxable in NJ? An Income and Sales Tax Look
Decipher the tax implications of earning income or providing services in New Jersey. Get clarity on NJ's labor taxation rules.
New Jersey’s tax structure impacts individuals and businesses, particularly concerning labor. Labor encompasses both earnings and services, each subject to distinct tax rules. Understanding these distinctions is important for compliance and financial planning.
Understanding Income Tax on Earnings
Income earned through labor in New Jersey is subject to the state’s Gross Income Tax. This applies to wages, salaries, and independent contracting income. Residents are taxed on all income, while non-residents are taxed on income sourced within New Jersey.
Employers typically withhold income tax from employee paychecks. Independent contractors and self-employed individuals must calculate and remit estimated tax payments. New Jersey has a progressive tax system with rates varying by income and filing status. Taxpayers must file a New Jersey income tax return if their gross income exceeds thresholds: $10,000 for single filers or married filing separately, and $20,000 for married filing jointly, heads of household, or surviving spouses.
Sales Tax on Services
New Jersey sales tax primarily applies to the retail sale of tangible personal property and specific digital products. The statewide sales tax rate is 6.625%. Sales tax also applies to a limited number of specifically enumerated services; most services are not taxable unless explicitly listed.
Taxable services include information services (e.g., credit reporting, stock market advisory), telecommunications, and utility services (gas, electricity). Landscaping services, storage services, and health and fitness club membership fees are also taxable. Cleaning and maintenance services for non-residential real property are taxable.
Other taxable services include:
Alarm monitoring
Animal grooming and boarding at the seller’s facility
Telephone answering services
Certain repair services where labor is part of the sale of tangible personal property (e.g., floor covering installation)
Car washing
Carpet cleaning
Catering
Pest control treatments
Many professional services, such as legal, accounting, and medical services, are generally exempt from sales tax. New Jersey law also exempts items like most clothing, unprepared food, and prescription drugs.
When labor is part of a transaction involving taxable goods, the labor charges may become taxable. For instance, if installation labor is included in the sale price of a taxable good, the entire amount may be subject to sales tax. For contractors, labor for repairs or maintenance is taxable, but labor for exempt capital improvements is not, provided proper documentation is obtained.
Navigating Sales Tax Responsibilities
Businesses providing taxable services in New Jersey must register with the New Jersey Division of Revenue and Enterprise Services to obtain a Sales Tax Certificate of Authority. Registration can be completed online. Businesses must display this certificate at their place of business.
Sales tax must be collected from customers on all taxable services at the 6.625% rate. Collected sales tax is held in trust for the state. Businesses must remit these collected taxes through regular filings. Most businesses file quarterly, requiring Form ST-50 and payments every three months.
Businesses that collected over $30,000 in sales and use tax during the prior calendar year, or accrued over $500 in sales and use tax in the first or second month of the ongoing quarter, may be required to make monthly payments.
Accurate record-keeping is important for compliance. Businesses must maintain records of all sales and collected taxes for four years. Failure to comply can result in penalties, including a $100 penalty for each month a sales tax return is late, plus an additional 5% of the unpaid tax liability, compounding monthly up to a maximum of 25%. The state may also impose interest on unpaid taxes.