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New Jersey Property Tax Programs Tweaked by Lawmakers

Background:

New Jersey Senate Bill 3693/Assembly Bill 4706 (the “Bill”) was signed into legislation by Gov. Phil Murphy on November 1, 2024.[1] The Bill focuses on implementing the new Stay NJ property tax relief program and impacts several other state property tax relief programs.

Stay NJ, in conjunction with the Affordable New Jersey Communities for Homeowners and Renters (ANCHOR) and the Senior Freeze programs, is a new program scheduled to take effect in 2026 designed to cut property taxes up to 50% (capped at $6,500) for New Jersey residents 65 and older who earn less than $500,000 a year. The ANCHOR program was launched in 2022 for taxpayers who earn less than $250,000 per year to update and expand upon the former homestead benefit. Under ANCHOR, homeowners and renters who meet certain income and residency requirements are eligible for property tax relief payments ranging from $450 to $1,500, with seniors eligible for an additional $250. The Senior Freeze property tax reimbursement program reimburses eligible senior citizens and disabled persons making less than $163,050 for increased property taxes on their principal residence.

How the Bill Affects Other Property Tax Relief Programs:

The Bill’s Legislative Fiscal Estimate discussed parameters of the Bill and how it will potentially affect other state property tax relief programs.[2] Under current law, there are different definitions of “income” for the purpose of determining eligibility for the Senior Freeze reimbursement and the Stay NJ property tax credit. For the Senior Freeze reimbursement, income is currently determined based on an eligible claimant’s total income, including income that is excluded in gross income under the New Jersey Gross Income Tax Act.[3] For the Stay NJ property tax credit, income is currently to be determined based on an eligible claimant’s gross income, which does not include income that is excluded from gross income under the New Jersey Gross Income Tax Act.

The Bill creates a uniform definition to alleviate discrepancies between such programs for purposes of determining eligibility for the Senior Freeze reimbursement and the Stay NJ property tax credit. While the new definition promotes uniformity, it will exist to the detriment of taxpayers in comparison to prior definitions. Under the new definition, an eligible claimant’s income would be determined using the person’s gross income, before the application of any deductions or exclusions, plus income from the following sources of excluded income that is not taxable for some in New Jersey: (1) all payments received under the federal Social Security Act; (2) pension and annuity income; (3) interest income; (4) other retirement income; and (5) distributions from a Roth Individual Retirement Account. Since Social Security payments are excluded from gross income and not reported on annual gross income tax returns, the Bill requires eligible claimants to report those amounts when applying for property tax benefits. The advent of this new uniform definition will increase the gross income of taxpayers for purposes of determining eligibility under these programs and may correspondingly exclude some taxpayers that would have qualified for relief under previous definitions of income.

The Bill also alters the method for determining the amount of an eligible claimant’s Stay NJ property tax credit. Current law entitles an eligible claimant to the greater of the: 1) Stay NJ property tax credit or 2) the combined amount of the ANCHOR property tax rebate and the Senior Freeze reimbursement. However, the Bill revises current law and provides that an eligible claimant will receive the full amount of the Senior Freeze reimbursement and an ANCHOR property tax rebate during any year in which they qualify for those benefits.

Here, the Bill stipulates if an eligible claimant additionally qualifies for a Stay NJ property tax credit, the amount of the credit would be equal to the amount of the claimant’s allowable Stay NJ property tax credit, less the amount of the ANCHOR rebate and the Senior Freeze reimbursement.  If the total amount provided to an eligible claimant through the ANCHOR and Senior Freeze programs exceeds 50 percent of a claimant’s property tax bill, the claimant will not receive a Stay NJ property tax credit in that year. The maximum Stay NJ property tax credit is 50 percent of an eligible claimant’s property tax bill, not to exceed $6,500 in tax year 2026, with annual adjustment in future years based on the annual increase in the average residential property tax bill. Thus, although the proposed changes to the Stay NJ program will affect the amount of property tax relief benefits that an eligible claimant receives through each property tax relief program, these changes will not affect the total amount of property tax relief benefits provided to each eligible claimant or the total state cost of these programs collectively.

Moreover, current law allows taxpayers to deduct up to $15,000 from gross income for property taxes paid in a tax year, which is unaffected by amounts taxpayers receive from property tax programs such as ANCHOR and Senior Freeze. However, the Bill amends current law to clarify that amounts deducted from gross income would be limited to property taxes paid by the taxpayer as opposed to amounts billed. For example, a senior resident’s property tax bill is $15,000, but the senior receives a $1,750 ANCHOR benefit, $750 Senior Freeze benefit, and a $4,000 Stay NJ benefit. This would leave the taxpayer with a $8,500 tax bill after deducting such property tax relief benefits. Under this Bill, the senior resident will only be able to deduct the remaining balance of $8,500 (the amount of tax actually paid after factoring in property tax relief benefits) on the resident senior’s state tax return instead of deducting the full $15,000 pursuant to current law. Therefore, the Bill will decrease the amount of property taxes deducted from state income tax returns for taxpayers eligible for such relief programs.

One of the most significant provisions to the Bill is that it requires the Division of Taxation to create a single application for all its property tax programs. This streamlined application would be open from February 1 through October 31 for New Jersey residents each year. Additionally, the Bill requires a scheduled distribution of property tax benefits every year. The Senior Freeze reimbursement will be delivered beginning in July; the ANCHOR rebate will be distributed beginning in September; and the Stay NJ tax credit will be provided to seniors starting in November. Further, the Bill stipulates that taxpayers must be residents of New Jersey as of December 31 of the benefit year to qualify for such property tax relief programs.

The Stay NJ program has been pre-funded and will phase in over the next few years. The initial direct credit on property tax bills is expected in the first quarter of 2026.

[1] S. 3693/A. 4706 (2024).

[2] New Jersey Legislative Fiscal Estimate, Assembly No. 4706, October 22, 2024.

[3] N.J.S.54A:1-1 et seq