New Jersey is Planning to Raise $390 Million in Fiscal Year 2021 through Tax Hikes on Millionaires
New Jersey Governor Phil Murphy and State Democratic leaders announced yesterday a revised fiscal year 2021 budget that raises the State’s gross income tax rate on income for families now earning between $1 million and $5 million.
Currently, the State’s top tax rate for income earned in excess of $1 million through $5 million pay 8.97%. Only when income exceeds $5 million does the marginal tax rate increase to 10.75%.
The Governor’s revised budget now increases the tax rate on income over $1 million to 10.75%, making it equal to the current rate paid on income over $5 million. The tax increase is part of a plan to redistribute funds to New Jersey families hard hit by the coronavirus pandemic by issuing $500 rebates to families who have a single-parent income of less than $75,000 or two-parent household income of less than $150,000.
Both the tax increase and rebate proposals have not yet passed the Legislature, but are likely to prevail given support from Democratic leadership and the fact that the Democrats hold solid majorities in both chambers. There is also the possibility that the tax may be retroactive to January 1, 2020.
The increased tax rates, which now edge closer to New York City rates, may push families earning in excess of $1 million out of New Jersey to lower tax jurisdictions such as Florida and Texas.
With the growing and widespread use of technology and mobile work spaces as a result of the pandemic, high earners who have not been working in traditional office spaces for the past six months may flee New Jersey to avoid paying more taxes.
Alternatively, there may be planning opportunities for taxpayers that maintain separate residences in a high and low or no tax jurisdiction such as New Jersey and Florida and may consider changing domicile and the number of days in and out of each respective state to achieve considerable tax savings.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.