The Repeal of the New Jersey Estate Tax

Background

On October 14, 2016, Governor Christie signed into law a transportation funding bill that included the repeal of the New Jersey Estate Tax.

What's New

  • The New Jersey Estate Tax repeal will be effective as of January 1, 2018. The current $675,000 exemption will increase to a $2 million exemption on January 1, 2017. The Estate Tax will be eliminated as of January 1, 2018. (The New Jersey Inheritance Tax is still in effect. This is a tax imposed on transfers to beneficiaries who are not spouses, parents, children or grandchildren (i.e., nieces, nephews, siblings, friends, etc.) New Jersey Inheritance Tax rates start at 11% and go as high as 16%.)
  • As part of the new law, there is a tax break for retirees. There will be an increase in the New Jersey gross income tax exclusion on pension or retirement income over four years (in 2020) to $100,000 for couples, $75,000 for individuals, and $50,000 for married taxpayers who file separately.
  • On January 1, 2017, the sales tax will be reduced from 7% to 6.875% and will be further reduced to 6.625% on January 1, 2018.
  • Gas tax will increase by 23 cents a gallon.

The Impact

There is no minimizing the impact of this legislation. Prior to this law, New Jersey had the lowest exemption ($675,000) from estate taxation of all 50 states and the District of Columbia. Beginning in 2018, when the law takes full effect, New Jersey will join 31 other states that do not impose an estate tax on residents.
In addition, the law increases (over a 4-year period) the amount of pension or retirement income that a New Jersey resident retiree can exclude from his or her New Jersey taxable income.

Who's Affected?

New Jersey residents dying in 2017 will receive an increase in the amount exempted from New Jersey estate taxation of $2 million. Those dying in 2018 or later will not be subject to New Jersey estate taxation. However New Jersey’s inheritance tax remains in effect and taxes transfer at death to beneficiaries who are not spouses, parents, children or grandchildren.
New Jersey retirees will enjoy a phased increase in the cap on the amount of “pension or retirement income”1 that will be excluded from income taxation according to the filing status and calendar year as follows:
Filing Status 2016 2017 2018 2019 2020
Married/Joint $20,000 $40,000 $60,000 $80,000 $100,000
Single $15,000 $30,000 $45,000 $60,000 $75,000
Married/Separate $10,000 $20,000 $30,000 $40,000 $50,000

Background

Those individuals who were considering moving to a state with no estate tax, such as Florida or Arizona can now rethink their plans as some of the advantages enjoyed by residents of those states can now also be enjoyed by New Jersey taxpayers.
While this is welcome news, it is still very important to make sure your estate is in order if you reside in New Jersey. For example, if you pass assets to beneficiaries who are not spouses, parents, children or grandchildren and you reside in New Jersey, you will still trigger a New Jersey Inheritance Tax, as this tax (which is called an inheritance tax) was not repealed.
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