Death of a Death Tax: New Jersey Lawmakers End Estate Tax, Lower Sales Tax and Raise Gas TaxOctober 13, 2016 – Alerts Taxation and Wealth Planning Alert
News of the expected phase-out of New Jersey’s estate tax — along with changes to federal estate tax laws in recent years — means that many New Jersey residents should consider simplifying their estate planning documents to eliminate outdated provisions designed to save state and federal estate taxes.
Mandatory trust provisions, for example, may no longer be needed to save estate taxes. We recommend that clients review existing wills and trusts with their attorney to determine whether they need to be updated in light of these recent tax law changes.
The death of the death tax is part of a larger tax reform package. On October 7, 2016, the New Jersey State Senate and Assembly passed a package of tax revisions, which the Governor is expected to sign soon, as a prerequisite to renewal of the Transportation Trust Fund.
This bi-partisan compromise consists of a 23-cent gas tax increase offset by certain tax cuts summarized below.
Estate Tax Phase-Out
Since 2001, New Jersey has imposed an estate tax in addition to a state inheritance tax. The estate tax applies to estates with assets of $675,000 or more. The new legislation raises the filing threshold to $2 million beginning January 1, 2017, and the estate tax is eliminated entirely as of January 1, 2018.
- Gas Tax
Effective November 1, 2016, New Jersey will go from having one of the lowest fuel surcharges in the nation (14.5 cents per gallon) to one of the highest (37.5 cents per gallon). This 23-cent increase more than doubles the current rate and puts the state above the national average. Revenue from gas tax increases will be used to fund construction projects on New Jersey roads, bridges and tunnels.
- Sales Tax
The statute provides for a two-year decrease in state sales tax. As of January 1, 2017, the 7 percent state sales tax will be reduced to 6.875 percent. On January 1, 2018, it will be reduced to 6.625 percent.
- Earned Income Credit
The Earned Income Credit for low-income workers will rise from 30 percent of the federal level to 35 percent. Eligibility for this credit depends on the income of the individual and the number of qualifying children.
- Tax Break on Retirement Income
Over four years beginning on January 1, 2017, the current exclusions from income tax on retirement income will increase as shown below:
- Veterans’ Exemption
Veterans who were honorably discharged from active service in the military or the National Guard will receive a state income tax exemption of $3,000 per tax year.
New Jersey residents can breathe a collective sigh of relief that effective January 1, 2018, an estate may be left to one’s spouse, children or grandchildren free of state death taxes. However, we recommend that our clients review their estate planning to assure both that their documents are appropriate in light of the new legislation and that they incorporate flexibility to accommodate future changes in the law.
For more information about this Alert, contact your Fox tax attorney or any member of the firm's Taxation and Wealth Planning practice.