By Evan Gernant
With tax reform legislation nearing enactment in Washington it’s easy to keep one’s focus on those headlines. There are, however, important changes in New Jersey and New York tax that have already been signed into law and will impact local taxpayers. Below is a summary of the more significant changes you will see affecting New Jersey and New York State taxpayers in 2018 and beyond.
- The sales & use tax rate will continue decrease slightly. A two-phase reduction of the sales tax has seen the rate drop from 7.000% in 2016 to 6.875% in 2017. The rate will drop again to 6.625% beginning January 1, 2018.
- The New Jersey estate tax exemption was increased from $675,000 to $2,000,000 for those individuals passing away on or after January 1, 2017. The estate tax is fully eliminated as of January 1, 2018. One should keep in mind that New Jersey also levies a separate and distinct inheritance tax, which will remain unchanged. The inheritance tax does not apply to inheritances received by a charity, the spouse, parent, child, grandchild or great-grandchild of the deceased individual. Upon the passing of an individual, transfers received by anyone other than those listed can be subject to an inheritance tax of up to 16%.
- The tax on gasoline of 37.5 cents per gallon, first implemented November 1, 2016, remains in effect. The gas tax hike represented a 23 cents per gallon increase from previously levels.
- The New Jersey pension exclusion benefit is being increased over a four-year period, fully phased-in by January 1, 2020. The pension exclusion is available to taxpayers 62 and up or qualified as disabled under the Social Security guidelines. The exclusion is only available if your gross income does not exceed $100,000. For the 2017 tax year the pension exclusion will be $40,000 for joint filers, $30,000 for single filers and $20,000 for married-separate filers. For the 2018 tax year the pension exclusion will be $60,000 for joint filers, $45,000 for single filers and $30,000 for married-separate filers. The phased-in increases in the exclusion are shown below in the table from the law:
- Personal income tax rates will drop 0.12% each year, beginning in 2018 and continuing through 2025 for those earning $40,000 to $150,000 and 0.08% each year for those earning $150,000 to $300,000.
- The top tax rate of 8.82% has been extended for 2018 and 2019 for individuals earning over $1 million, married couples earning over $2 million and those filing as head of household earning over $1.5 million.
- A cap, which is set to expire at the end of 2019, was placed on charitable contribution deductions. For those with New York adjusted gross income (AGI) between $1 and $10 million the deduction is limited to 50% of charitable contributions. For those with New York AGI of more than $10 million the deduction is limited to 25% of charitable contributions.
- The sale of a partnership interest by a nonresident partner may result in New York source income as a result of a change in the law. Effective since April 2017, to the extent that the recognized gain relates to the partnership’s assets located in New York the nonresident partner may have New York sourced gain.
Evan Gernant is a Tax Director at Wiss & Company. If you would like to speak with Evan, you may reach him at email@example.com or at 973.994.9400.