New Jersey Passes FY 2021 Budget: Expands Millionaire’s Tax and Reinstates CBT Surcharge
Gibbons Corporate & Finance News - Legislative Tax Alert
September 30, 2020
On September 29, 2020, just ahead of the September 30th deadline, New Jersey’s Governor Phil Murphy signed the fiscal 2021 budget, for the short fiscal year running from October 1, 2020 through June 30, 2021. The New Jersey Assembly and Senate approved the budget on Thursday, September 24. This budget includes key tax items from the Governor’s August budget proposal, such as the Millionaire’s Tax and corporate income tax surcharge, but has dropped most other new taxes proposed by the Governor (see prior Gibbons Alert from August 28, 2020). The Governor signed the budget as drafted, declining to exercise his line item veto power.
The Millionaire’s Tax, which Governor Murphy has twice tried to enact unsuccessfully, lowers the threshold for the top 10.75% marginal Gross Income Tax rate from $5 million to $1 million, effective beginning January 1, 2020. Income from $1 million up to $5 million is currently taxed at 8.97%, so this represents a significant increase. The Millionaire’s Tax will be paired with a tax rebate of as much as $500 for low and middle-income NJ households, which will offset much of the anticipated additional revenue from the new tax.
The budget also extends the 2.5% Corporate Business Tax (CBT) surtax on corporations with more than $1 million in net income, which is imposed in addition to the 9% tax rate levied against those businesses. However, this is a four year extension of the surtax rather than a permanent extension as sought by the Governor. A third tax increase proposed by the Governor also made it into the final budget legislation, increasing the assessment on net written premiums by Health Maintenance Organizations (HMOs) from 3% to 5%.
The governor’s proposed taxes on cigarettes, opioid manufacturers, bear hunting permits, firearms and ammunition sales, limousine services, boat and yacht rentals, and a surcharge on the qualified business income of higher-income individuals who benefited from the federal IRC Section 199A pass-through deduction, have all been removed from the budget legislation.