Pub. 17 2018-2019 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 3 , 2 0 1 8 20 new jersey auto retailer As part of New Jersey’s fiscal year 2019 budget the Legislature made several changes to New Jersey tax laws affecting individual and business taxes. Individual Tax Rate Increase: A new top income tax bracket has been established: New Jersey taxable income exceeding $5 million will be taxed at 10.75%, effective January 1, 2018. For the 2018 tax year and thereafter, a gross income tax rate of 10.75% will apply on taxable income in excess of $5 million, regardless of the filing status of the taxpay- er. Previously, the highest tax rate was 8.97% and it applied to taxable income of $500,000 and over. The new law provides a new withholding rate for the remainder of 2018. Beginning no later than September 1, 2018, employers were directed to withhold gross income tax at the rate of 15.6% from salaries and wages paid for services rendered in excess of $5 million during the taxable year. The higher withholding rate allows taxpayers affected by the rate increase to “catch-up” on their withholding for the year since the new tax rate is retroactive to January 1. The Division of Taxation won’t impose penalties for insufficient payment of estimated tax and/or withholdings that may otherwise be due before September 1, 2018, if the insuf- ficiency is the result of the new tax rate. Passing the so-called “millionaire’s tax” in June of this year was a contentious process in the State Legislature. Democratic legislators approved a tax hike on millionaires five separate times under then-Governor Chris Christie—knowing he would veto it. Now that New Jersey has a new Governor, ready to sign the bill, many democratic legislators seemed to be having second thoughts during the budget negotiations. Some have pointed to the changed tax environment created by the Tax Cuts and Jobs Act (TCJA) passed by the U.S. Congress and signed into law by President Trump late last year. Under TCJA, tax cuts for some taxpayers were offset by severe limits on deductions for state and local income and property taxes. This provision of TCJA disproportionately hits taxpayers in states with high state and local taxes, such as New Jersey. In this changed tax environment, New Jersey Enacts Several Tax Law Changes that Affect Auto Dealers BY ROCHELLE KIMMINS, CPA, CFP