New Jersey relies heavily on its state income tax receipts to fund budgetary expenditures. In fact, New Jersey residents pay 11.8 percent of their income to state and local taxes, the highest percentage of any state in the country. The state budget suffered in the late 2000s due to decreased tax revenues in a sluggish economy.
Income Tax Rates
New Jersey's income tax rates fall into six brackets, with earners over $500,000 paying the highest percentage, at 8.97 percent. The lowest tax rate is for earners who make up to $20,000 annually and who pay 1.4 percent. In 2009, in an effort to close a budget gap, the state introduced what it called a one-time tax increase on people making over $400,000 in the year. For that tax year, the highest earning bracket was shifted to those earning more than $1 million and those residents paid a tax rate of 10.75 percent. Residents making between $500,000 and $1 million paid 10.25 percent and earners between $400,000 and $500,000 paid 8 percent. The tax rates reverted to 2008 levels after 2009.
A "millionaire's tax" was passed by the state legislature in the summer of 2010 and would have placed a surcharge on all residents earning over $1 million annually. Governor Chris Christie vetoed the plan and the legislature failed to override the veto.
A tax payer who lived in New Jersey for only part of the year is required to file a state tax return if his income for all sources for the year (not simply the portion of the year lived in-state) exceeds $20,000. People who earned income from New Jersey sources prior to moving to the state or moving out will also be required to complete a nonresident tax return.
Exemptions and Deductions
New Jersey offers a standard set of exemptions as well as particular deductions and credits for its residents. Under exemptions, a taxpayer may claim $1,000 for himself, $1,000 for a spouse or civil union partner, $1,500 for a dependent and $1,000 for a dependent between 18 and 22 who is attending college full-time. Seniors over 65 receive an additional $1,000 for themselves and their spouses/civil union partners. Blind or fully disabled residents receive $1,000 for themselves and any blind or fully disabled spouses/civil union partners.
The state offers deductions on sliding scales, including alimony reported as income by the recipient, certain medical expenses and medical savings account contributions and medical and dental caregivers operating in state-identified Health Enterprise Zones.
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