5 tax cuts to take effect in N.J. on Jan. 1

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5 tax cuts to take effect in N.J. on Jan. 1

Posted on 1/12/2017 by EDTP Coordinator in LAEDA News

Reprinted from courierpostonline.com Many drivers are still reeling from a 23-cent increase in the state’s gas tax that took effect in November, raising New Jersey’s fuel prices from some of the lowest in the nation to near the middle of the pack. But with the new year, residents will find some relief in a collection of tax cuts that were passed in tandem with the increase in the levy on motor fuels — part of a deal between Gov. Chris Christie and Democratic lawmakers to shore up the state’s insolvent Transportation Trust Fund, which pays for transportation infrastructure projects.

A small decrease in the sales tax, a phasing out of the estate tax and other breaks to help retired individuals, veterans and the working poor all take effect Jan. 1. Some of the tax cuts are set to deepen in subsequent years.

The tax cuts remain controversial, however, because of the additional stress they could place on a state with a litany of budget problems, most notably a severely underfunded pension system.

By fiscal 2022, the tax cuts will have deprived the state of $1.4 billion in annual revenue, according to an estimate by the Office of Legislative Services, whereas the $1.2 billion generated by the gas-tax increase is dedicated exclusively to transit projects and cannot be used to shore up other areas of the state budget.

Shortly after Christie and Democratic lawmakers reached the gas tax deal in October, S&P Global Ratings downgraded New Jersey’s bond rating. It cited as its rationale the status of the pension system and the loss in revenue that would be caused by the tax cuts.

It was the 10th time under Christie that one of the three top credit-rating agencies — S&P, Fitch Ratings and Moody's Investors Service — has downgraded New Jersey, the most downgrades ever amassed by a governor in the United States.

The state budget this year is $34.5 billion.

What you need to know about the tax cuts:

Sales tax

The state’s sales and use tax is due to decrease one-eighth of a percentage point — from 7 percent to 6.875 percent — on Sunday and another two-eighths of a percentage point on Jan. 1, 2018.

That doesn’t represent a huge savings for the average consumer. In 2017, the savings on a $100 purchase will amount to 13 cents. That amount will triple starting in 2018.

But multiplied by all the residents in the state, each one-eighth of a percentage point decrease in the sales tax is worth about $186 million annually, according to an analysis by the Office of Legislative Services.

Estate tax

Starting Sunday, New Jersey residents will be able to leave estates worth up to $2 million without triggering the state’s estate tax. The previous threshold was $675,000 — the lowest in the nation.

The estate tax is to be completely eliminated on Jan. 1, 2018. The Office of Legislative Services estimates that the change will benefit 3,500 estates annually.

In fiscal 2014, the estate tax accounted for $320 million in revenue for the state, according to OLS figures.

The state also has an inheritance tax, which applies to assets left to beneficiaries other than immediate family members. It remains intact, with rates that range from 11 percent to 16 percent.

Retirement income

In the next four years, the amount of pension and other retirement income that New Jersey residents 62 and older can exclude on their state tax returns will quintuple.

Before 2017, joint filers could exclude up to $20,000 of such income, which includes pension payments, annuity income, withdrawals from savings accounts and other sources. That amount is due to double in 2017 and increase to $100,000 in 2020.

Individuals and those who are married but file tax returns separate from their spouse will also see the amount they are able to exclude increase fivefold from 2016 levels of $15,000 and $10,000, respectively.

Anyone with more than $100,000 in income is not eligible for the exclusion.

Earned Income Tax Credit

New Jersey’s Earned Income Tax Credit is set to increase to 35 percent of the federal Earned Income Tax Credit in 2017. That’s a 5 percent jump over current levels.

The credits reduce the amount that low- and moderate-income working people have to pay in taxes and is based on a number of factors that include income, marital status and number of children. In some cases, individuals can even earn refunds from the state that exceed their taxes.

The New Jersey credits supplement federal credits. The OLS estimated that the average New Jersey credit would be worth $836 in 2016 and would cost the state $63.5 million in fiscal 2018.

Exemption for veterans

Veterans who are honorably discharged or released from service under honorable circumstances will be eligible for an annual tax exemption of $3,000, starting in 2017.

The average benefit for each of the state’s estimated 220,000 veterans with an income-tax liability will be worth about $105, the OLS said.

Written by: Nicholas Pugliese, State House Bureau

Email: pugliese@northjersey.com

@nickpugz

Photo credit: Getty Images

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