Sarah Kim, J.D., LL.M. and Ken Maeng, J.D.
10.7.20 | Client Alert
New Jersey Governor Phil Murphy recently signed the fiscal 2021 budget which includes a so-called “millionaires tax.” The new budget will require immediate action by employers and taxpayers.
Personal Income Tax Increased
Beginning with the 2020 tax year, the tax increase applies to the state’s top gross income tax rate of 10.75% already applicable to taxable income in excess of $5 million for individuals (regardless of filing status) with taxable income between $1 and $5 million. For tax year 2020, no penalty will be imposed on taxpayers for underpayment of increased estimated tax that is attributable to the increased rate imposed on taxable income received before November 1, 2020.
Employer Catch Up
To “catch up” on the increased liability, employers should withhold 21.3% from compensation paid to employees for services rendered over $1 million, but not over $5 million, as soon as practical but no later than November 1, 2020. For tax year 2020, no penalties or interest will be imposed on employers for insufficient withholding of compensation paid before November 1, 2020 that is attributable to the increased rate.
Tax Rebate Added
In addition, New Jersey enacted legislation creating a tax rebate of up to $500 for a “qualified taxpayer.1” The rebate is the lesser of $500 or the amount of actual tax paid.
Corporation Business Tax Surtax Increased
The new budget extends and increases the corporation business tax (CBT) surtax rate to 2.5% until December 31, 2023 on corporate taxpayers with allocated taxable net income in excess of $1 million for tax years beginning on or after January 1, 2020. Prior to enactment of this law, the CBT surtax rate was 1.5% for tax years beginning on or after January 1, 2020 and was scheduled to be eliminated after December 31, 2021. The law waives all penalties that a taxpayer may incur due to the retroactive imposition of the surtax rate. The surtax, however, will be suspended at the end of a taxpayer’s current tax period if the federal corporate income tax rate is increased to its pre-Tax Cut and Jobs Act level (i.e., 35% of taxable income). Public utilities are exempt from the surtax.
Questions? Contact Wayne K. Berkowitz, CPA, J.D., L.L.M. at 212.331.7465 | firstname.lastname@example.org or Richard Goldstein, J.D. at 212.331.7557 | email@example.com or reach out to your Berdon advisor.
Berdon LLP New York Accountants
1 A qualified taxpayer is defined as an individual who timely filed a resident return and had during the tax year: (i) at least one dependent child; (ii) a gross income tax liability greater than zero; and (iii) gross income not exceeding $150,000 for married individuals filing jointly and an individual filing as a head of household or as a surviving spouse, or gross income not exceeding $75,000 for married individuals filing separately and an individual filing as a single taxpayer.