Bill Would Increase NJ EITC, Expand Property Tax Deduction Cap & Create Child and Dependent Care Tax Credit
(TRENTON) – Legislation sponsored by Assembly Democrats Angelica Jimenez (D-Bergen/Hudson) and Raj Mukherji (D-Hudson) to provide tax relief for low income and middle class families in New Jersey was approved Thursday by the General Assembly.
“It is no secret that New Jersey has one of the highest property taxes in the nation,” said Jimenez. “These changes will help relieve some of this financial hardship by expanding the property tax deduction cap, increasing the earned income tax credit and providing a new credit to help offset the cost of child care, which for families with multiple children can really add up.”
“By boosting the Earned Income Tax Credit, the tax deduction for homestead property taxes, and tax credits for child and dependent care, we will alleviate some of the financial burdens shouldered by middle class and low income residents of one of the costliest states in the nation,” said Mukherji.
The bill (A-3088) would make the following four changes related to the gross income tax
GIT Deduction for Property Taxes
The bill would increase the maximum income tax deduction allowed for homestead property taxes paid from $10,000 to $15,000.
Earned Income Tax Credi
The bill would increase the state earned income tax credit from 35 percent to 40 percent of the federal earned income tax credit on a phased-in basis over three years. The state benefit amount would increase from 35 percent in taxable year 2017 to 37 percent in taxable year 2018, to 39 percent in taxable year 2019, and to 40 percent in taxable year 2020. After taxable year 2020, the state earned income tax credit would remain at 40 percent of the federal earned income tax credit.
Child and Dependent Care Tax Credit
The bill would provide a nonrefundable income tax credit to taxpayers who incur employment-related expenses while caring for a child or dependent. The credit would be available to taxpayers who are allowed the federal child and dependent care credit and have New Jersey taxable income of $60,000 or less for the taxable year. Employment related expenses are expenses for household services and for the care of a dependent or child incurred to enable the taxpayer to hold gainful employment.
The amount of the credit provided by this substitute is a specific percentage of the taxpayer’s federal child and dependent care credit and varies according to the amount of the taxpayer’s New Jersey taxable income. A taxpayer with a taxable income:
· not over $20,000 receives 50 percent of the federal credit;
· over $20,000 but not over $30,000 receives 40 percent of the federal credit;
· over $30,000 but not over $40,000 receives 30 percent of the federal credit;
· over $40,000 but not over $50,000 receives 20 percent of the federal credit; and
· over $50,000 but not over $60,000 receives 10 percent of the federal credit.
The bill would cap the credit at a maximum of $500 for expenses paid for the care of one dependent or child, and $1,000 for expenses paid for the care of two or more dependents of children, per taxable year.
Taxation of Investment Management Services
The bill would also tax income attributable to certain “investment management services” that an individual partner or corporate partner provides on behalf of a partnership.
In addition, the bill would also implement a 17 percent surtax as a “carried interest fairness fee” under the GIT and the corporation business tax. This surtax aims to “repatriate” the federal income tax lost at the federal level back to the states. However, this 17 percent “carried interest fairness fee” would only remain in effect until the Director of the Division of Taxation determines that the federal government has enacted legislation having an identical effect with this act applicable to such income earned in all of the states and territories. Thus, the state surtax would end if the federal government closes the loophole nationwide. This section of the bill concerning the taxation of investment management services would only take effect if Connecticut, New York, and Massachusetts signed bills into law that had an identical effect. This is intended to complete a multi-state level effort to close the loophole so that fund managers could not avoid the tax by simply moving to a nearby state.
The bill would take effective immediately and would apply to tax years beginning on and after January 1, 2018.
The bill was approved 56-11-7 by the Assembly and now awaits further consideration by the Senate.