New Jersey Governor Phil Murphy approved and signed off on a revised $32.7 billion state budget on September 29, 2020, which imposes an expansion of the “millionaires tax”, long-debated by New Jersey’s Legislature. Though Murphy has been lobbying, since he took office, to hike the income tax rate imposed on those New Jersey residents who earn between $1 million and $5 million a year, the urgent need for the tax increase became more apparent to Democratic leaders in light of the economic hardships many low income and middle class earners are now facing due to the COVID pandemic.
Under the new budget, high net worth individuals with incomes falling between $1 million and $5 million will be required to pay the state’s highest marginal rate of 10.75% — a rate previously reserved for only those earning in excess of $5 million, annually. To date, those who fall within the considered threshold have been paying a top marginal rate of 8.97% in income tax. The rate increase is retroactive to January 1, 2020.
The state budget also includes a rebate of up to $500 for those families with one or more children and household incomes of less than $150,000 (for two parent households) or $75,000 or less (for single parent households). According to Murphy, those eligible should be able to file for the rebate as part of the 2020 tax filing season in April 2021, with rebate checks to be issued during the month of July in 2021.
Although the millionaires tax increase is anticipated to bring in an added $390 million in state revenue, approximately $350 million will go back out to cover the cost of the rebate checks that will be distributed to lower and middle-income families who qualify.
The revised budget also impacts corporate businesses by way of a 2.5% surtax that will be instated and set in place for four years, replacing the current 1.5% surtax.