NJ State Taxation: A Comprehensive Overview of Taxes in New Jersey

New Jersey has a complex tax system affecting residents, businesses, and property owners. With some of the highest property taxes in the country and multiple layers of taxation, understanding these rules is essential for financial planning.

This article breaks down key aspects of New Jersey’s tax structure, including income taxes, sales taxes, corporate taxes, and more.

Income Tax

New Jersey’s income tax system has multiple brackets and specific rules regarding residency and deductions. Unlike federal taxes, the state offers fewer exemptions and deductions.

Residency

New Jersey classifies taxpayers as residents, nonresidents, or part-year residents. A person is considered a resident if they maintain a permanent home in the state for more than 183 days in a tax year. Nonresidents pay taxes only on income earned in New Jersey, while part-year residents are taxed as residents for the portion of the year they lived in the state.

A reciprocal tax agreement with Pennsylvania ensures Pennsylvania residents working in New Jersey pay income tax only to Pennsylvania, preventing double taxation.

Tax Brackets

New Jersey has a progressive tax system, with rates increasing as income rises. For 2024, the tax brackets are:

– $0 – $20,000: 1.4%
– $20,001 – $35,000: 1.75%
– $35,001 – $40,000: 3.5%
– $40,001 – $75,000: 5.525%
– $75,001 – $500,000: 6.37%
– $500,001 – $1,000,000: 8.97%
– Over $1,000,000: 10.75%

Unlike the federal system, New Jersey applies a single rate to a taxpayer’s entire income. For example, someone earning $50,000 pays 5.525% on the full amount, not a blended rate across brackets. This can result in higher effective tax rates for middle-income earners.

Credits

New Jersey offers tax credits to reduce liability. The New Jersey Earned Income Tax Credit (NJEITC) provides a state credit equal to 40% of the federal Earned Income Tax Credit in 2024.

The Property Tax Credit allows homeowners and renters to claim up to $50 based on property taxes paid. The Child and Dependent Care Credit offers a percentage of the federal credit for those earning under $150,000.

A credit for taxes paid to other states helps residents avoid double taxation when working outside New Jersey.

Sales and Use Tax

New Jersey imposes a 6.625% sales tax on most goods and certain services. Essential items such as groceries, clothing, prescription medications, and medical devices are exempt.

A use tax applies to taxable items purchased out of state but used in New Jersey. If an out-of-state retailer does not collect New Jersey sales tax, residents must report and pay the equivalent use tax, particularly relevant for online purchases.

The Urban Enterprise Zone (UEZ) program allows businesses in designated areas, such as Newark, Camden, and Elizabeth, to charge a reduced sales tax rate of 3.3125% on eligible purchases. Businesses must register and meet specific criteria to qualify.

Businesses must remit collected sales tax quarterly or monthly, depending on revenue. Failure to comply can result in penalties, fines, and interest on unpaid taxes. The state conducts audits to ensure compliance.

Corporate Business Tax

New Jersey’s Corporate Business Tax (CBT) is based on taxable net income. As of 2024, corporations earning $100,000 or less pay 6.5%, those with income between $100,001 and $1 million are taxed at 7.5%, and income exceeding $1 million is subject to a 9% rate.

Companies operating in multiple states must apportion income based on a single-sales factor formula, taxing only revenue generated from New Jersey sales.

An Alternative Minimum Assessment (AMA) applies to C corporations with gross receipts exceeding $2 million, ensuring businesses with large revenues but low taxable income contribute a minimum amount.

Since 2019, corporations in a unitary business group must file combined returns to prevent profit shifting to subsidiaries in lower-tax states. Under this system, the income of all related entities is combined, and tax is assessed based on the portion attributable to New Jersey.

Estate and Inheritance Taxes

New Jersey eliminated its estate tax in 2018 but still levies an inheritance tax, based on the beneficiary’s relationship to the deceased.

Class A beneficiaries—including spouses, children, grandchildren, and parents—are exempt. Class C beneficiaries, such as siblings and in-laws, receive a $25,000 exemption and are taxed at rates from 11% to 16% on amounts exceeding that threshold. Class D beneficiaries, including distant relatives and non-family members, face a 15% tax on the first $700,000 and 16% on amounts above that. Charitable organizations and public institutions are exempt.

Property Taxes

New Jersey has some of the highest property taxes in the country, often exceeding 2% of a property’s assessed value. These taxes fund local services, including public schools and municipal operations.

Homeowners can challenge property assessments if they believe their homes are overvalued. The state periodically reassesses property values to ensure fair taxation.

Several relief programs help offset costs. The ANCHOR (Affordable New Jersey Communities for Homeowners and Renters) program provides rebates based on income and property tax payments. The Property Tax Reimbursement Program, or “Senior Freeze,” reimburses eligible seniors and disabled residents for property tax increases. Veterans and their surviving spouses may qualify for deductions or full exemptions.

Penalties for Late Payments

Failing to pay taxes on time results in penalties and interest. The state charges interest on unpaid taxes at a rate of 3% above the prime rate, compounded annually. A late payment penalty of 5% may apply, and failure to file a return can result in an additional 5% penalty per month, up to 25%.

Continued noncompliance can lead to tax liens, affecting credit scores and limiting the ability to sell or refinance property. In extreme cases, the state may seize assets or garnish wages. Businesses that fail to remit sales or payroll taxes risk license revocations or legal action.

Taxpayers struggling to pay can apply for payment plans, allowing them to pay overdue amounts in installments while minimizing additional penalties.