New Jersey Budget Passage Includes Additional Income Taxes on Individuals with Taxable Income over $1 Million
On September 29, 2020, Gov. Phil Murphy signed a budget for revised fiscal year 2021. The budget includes $32.7 billion in state funds and appropriation of 13.8 billion in federal funds. The revised fiscal year begins October 1, 2020, due to the extension of fiscal year 2020 during the coronavirus pandemic. The budget includes funding for more than $2 billion in the state’s “rainy day” fund.
The budget also authorizes state borrowing of up to 4.5 billion during the fiscal year. This appropriations bill relies upon the state’s ability to issue the amount of borrowing in general obligation bonds. In August of 2020, New Jersey’s Supreme Court affirmed that bonds may be sold without voter approval due to an emergency exception, under the condition that formal certifications are issued by the administration, which clearly define how the debt bonds resulted from the impact of coronavirus.
Rebates of $500 to taxpayers with at least one dependent child and gross income tax liability greater than zero will go out in August 2021. Taxpayers who are married filing jointly, heads of household and surviving spouses, with no more than $150,000 dollars of gross income would qualify. Taxpayers who are filing separately or individual filers making no more than $75,000 dollars would also qualify for the rebate. The rebate provisions are expected to cost the state at least $300 million annually, starting in fiscal year 2022.
The Governor also signed revenue raising measures as part of the budgetary process, which are expected to generate $750 million in fiscal 2021.
First, the existing 10.75 percent tax rate on income over $5 million will be extended to taxable income over $1 million for individuals, applying to every dollar earned over $1 million, regardless of whether single or joint filers.
Second, the 2.5% percent business corporation tax surcharge is extended until December 31, 2023. The four-year surtax was imposed on companies with over $1 million in allocated net income at a rate of 2.5% percent for tax year ending December 31, 2019. However, the surtax was reduced to 1.5% percent for tax years beginning after January 1, 2020. Finally, the measure also includes a provision that if the federal income tax rate is increased to a rate of at least 35% percent of taxable income, the imposition of the surtax is suspended.