New Jersey Personal Income Tax Laws
Created by FindLaw's team of legal writers and editors | Last reviewed June 20, 2016
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Personal income taxes help states pay for important infrastructure projects, such as highways and bridges, as well as public education, police, and other state necessities. Some states don't have an income tax and make up for the revenue elsewhere. New Jersey personal income tax is progressive in the sense that rates are higher for high earners. The state's lowest rate is 1.4 percent, while those earning more than $500,000 pay 8.97 percent.
The details of New Jersey's personal income tax laws are listed below, and in-depth coverage follows.
|Code Section||54A:1, et seq.|
|Who is Required to File||Individuals, estates and trusts, residents and nonresident taxed on gross income; Nonresidents are only taxed on income derived from New Jersey sources; Partnerships and associations are not taxable; Local taxes may be required|
|Rate||First $20,000, 1.4%; Next $30,000, 1.75%; Next $20,000, 2.45%; Next $10,000, 3.5%; Next $70,000, 5.525%; Next $150,000, 6.37%; Over $500,000, 8.97%|
|Federal Income Tax Deductible||No|
|Federal Income Used as Basis||No|
How Progressive Income Tax Works
The percent of federal income tax you pay is calculated based on how much money you earn. The same goes for many states as well, including New Jersey. However, there are some common misconceptions about how progressive personal income tax works. Although a person making $50,000 a year will pay at a lower tax rate than a person who makes $100,000 a year, the person who makes $100,000 a year does not pay the higher interest rate on their entire income. If this was the case, some people would have a strong incentive to make less money. For example, let's say that two taxpayers in the same state make roughly the same income per year. One makes $49,000 a year, and the other makes $51,000 a year. In that state, the tax rate is 10% for people making less than $50,000 per year, and 20% for people making over $50,000 per year. If that was the case, the person making $49,000 per year before taxes would make more money after taxes than the person who makes $51,000 per year.
Instead, in a progressive tax scheme, the increased tax rate only applies to income beyond a certain level. In the previous example, the person making $51,000 per year would pay a 10% tax rate on the first $50,000 of their income, and pay a 20% tax rate on the $1,000 over the first tax bracket.
New Jersey Progressive Income Tax Rates
New Jersey has a progressive tax rate according to the following list, although it may change yearly:
First $20,000: 1.4% tax rate
Next $30,000: 1.75%
Next $20,000: 2.45%
Next $10,000: 3.5%
Next $70,000: 5.525%
Next $150,000: 6.37%
Income beyond $500,000: 8.97%
If you would like to know more about how New Jersey's tax laws apply to your annual income, you may wish to speak with a tax attorney in New Jersey. In addition to helping you navigate New Jersey's tax laws, the attorneys may be able to help you design a financial scheme that helps you avoid paying unnecessary taxes while still staying within the law.
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