Changing New Jersey Tax Residence: Gross Income Taxes to Rise Again?
By: Robert S. Schwartz, Esq.
As recently as April 17th, Governor Phil Murphy’s proposal to impose a 10.75% tax rate on the incomes of New Jersey families exceeding $1,000,000 continues on its way to becoming law. The proposal’s accompanying estimates reflect that approximately 18,000 New Jersey resident families and 19,000 New Jersey non-resident families, but who have substantial income from New Jersey sources, will be paying this higher tax rate. The tax increase, if any, will begin this year, or maybe next year, and is estimated by the Office of Legislative Services to be good for $477M per annum.
Governor Murphy made the same proposal not long after he was elected governor during 2017. The Senate and Assembly leadership, however, continue to be cool to the idea, because recent studies from independent, third-party institutions have revealed the fact that the same 10.75% on the incomes exceeding $1,000,000 in effect in New Jersey for 2009, on top of earlier tax increases during the terms of former Governor Jim McGreevy, led to a relatively large number of New Jersey high income earners establishing income tax residency in states such as Florida and Pennsylvania, among others. Recent polling data reflects a strong majority of those polled like the idea of a 10.75% tax rate on the incomes exceeding $1,000,000.
We at Herold Law appreciate that New Jersey has been among the highest, or the highest, taxing state over the course of at least the last ten (10) years as reported by the respected Tax Foundation. We further appreciate that so long as a family has New Jersey source income, present law gives New Jersey the right to tax that income by virtue of its being from a New Jersey source, except for retirement income from a limited number of qualifying pension plans connected with a New Jersey career. A non-resident’s income that is not from a New Jersey source, such as dividends and capital gains, is not New Jersey source income, however, and, hence, not taxable by New Jersey as to a former resident.
We regularly provide legal advice and counsel to clients in connection with shifting their state of tax residency from New Jersey or New York to lower tax jurisdictions. We have found that not all circumstances are black or white, but can and do present many shades of gray where sound legal judgment becomes imperative. This is most often so for the year during which a New Jersey resident family changes its place of abode from New Jersey to a lower tax jurisdiction for the first time.