New Jersey officials have reached an agreement on the so-called millionaire’s tax. Governor Phil Murphy, Lieutenant Governor Sheila Oliver and several legislative leaders have announced that the revised fiscal year 2021 (FY2021) budget will raise the state's gross income tax rate on income between $1 million and $5 million. At the same time, a tax rebate will be issued to certain middle-class taxpayers. As of the time of this writing, the above noted legislation has not been enacted into law but is likely to be approved.
The New Jersey tax rate will increase from the current 8.97% to 10.75% for all New Jersey taxable income over $1 million. Currently, the 10.75% tax rate only effects New Jersey taxpayers with income over $5 million per year. The governor and legislative leaders also announced a tax cut that will pay a rebate up to $500 to families with taxable income under $150,000 per couple (or $75,000 for a single individual), with at least one dependent child. The goal will be to distribute the rebate to eligible taxpayers in the summer of 2021.
The tax deal comes at a moment when the country is enduring its worst economic crisis in decades, and Gov. Murphy said the tax would help make up shortfalls caused by the pandemic. However, the change in tax rates give New Jersey the distinction of having the third highest personal income tax rate in the country (behind only California – 13.3% and Hawaii – 11%).
The increase in New Jersey’s tax rate may become the beginning of an exodus for many New Jersey residents that will seek residency in states with a lower tax burden. While the New Jersey Division of Taxation has historically not been active in auditing New Jersey residents that claim a change in domicile, that may change given the State’s dire financial condition.
Anyone who is considering a change of domicile but wishes to keep their historical home in New Jersey should speak with a Citrin Cooperman State and Local Tax (SALT) professional.