Let’s Keep New Jersey Retirees in New Jersey

Let’s Keep New Jersey Retirees in New Jersey

As many of us alreadyknow, New Jersey is a very expensive place to live. Theproperty taxes and state and local taxes are among the highest in the nation. New Jersey is only one of sixteen states that still hasan estate tax and only one of seven states that still hasan inheritance tax. It is no wonder that in the past few years many people have chosen to leave their homes in New Jersey to move to tax-friendlier states such as Florida and Texas. Many of the people that choose to leave are of retirement age and feel disenchanted by the few tax exclusions offered to retirees.

New Jersey does, however, offer its retirees some tax benefits. New Jersey does not tax social security benefits and it does offer exclusions of part of retirement benefits if total income is under certain thresholds. Many residents still feel that the state is not doing enough to keep its retirees home. A large number of residentscontinue to move away from their friends and family to preserve the income and assets they have worked so hard for their entire lives.

One way New Jersey legislators are trying to stop the outward migration of its state residents is with State Senate Bill S-1728. Authored by Senator Paul Sarlo and Senator Steven Oroho, Bill S-1728 is designed to gradually eliminate New Jersey’s estate tax. The bill, if passed, would increase the tax exclusion from the current level of $675,000 to $1 million the first year and completely phase out the estate tax over five years. The $1 million estate exclusion would begin January 1, 2017, and then increase to $2,500,000 in 2018, $3,500,000 in 2019 and $5,000,000 for 2020. For 2021 and beyond, there would be no estate tax imposed. The bill was approved by the senate committee on February 29, 2016.

The current legislative reform is hoping to eliminate a tax that applies to residents with relatively modest assets – the middle class. In New Jersey, it is not hard to have assets totaling $675,000 or more. In 2015, the average residential sales price for a house in New Jersey was $397,279, according to the State of New Jersey Department of the Treasury. It is a small jump from a $400,000 home to paying an estate tax for assets of $675,000 or more.

Another bill that may keep more retirees in the state is State Senate Bill S-998, which would increase the exclusion rate on retirement income. This bill was introduced by Senator Paul Sarlo, Senator Steven Oroho and Senator Stephen Sweeney. Under the current law, taxpayers with $100,000 or less of annual income, who are at least 62 years of age, may claim a pension and retirement income exclusion of up to $20,000 for joint filers, $15,000 for individuals and $10,000 for married filing separate filers. The new bill would still be for taxpayers with $100,000 or less of annual income who are 62 years of age, but would increase the personal income tax exclusion to $100,000 for joint filers, $75,000 for individuals, and $50,000 for married filing separately. The bill would be phased in over a three-year period. This bill was introduced on February 4, 2016, and later referred to the Senate Budget and Appropriations Committee on February 29, 2016.

If New Jersey wants to keep grandparents, parents and children in the state as well as the many family owned businesses, elimination of the estate tax and offering additional retirement exclusions are steps in the right direction. The statecould save some of the millions of tax dollars that are lost when New Jersey retireesdecide to leave. Who knows, maybe a good third step would be to get rid of the inheritance tax – dare to dream…

If you have any questions or would like to discuss this matter further, please contact a member of Withum’s Private Client Services Group at [email protected].

To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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