New Jersey Gas Tax Hike and Impact to Estate and IncomeTax

Governor Christie struck a deal with Democratic leaders of the New Jersey legislature on October 14 that will raised the gas tax but has corresponding sales, estate and income tax cuts to be phased in over the years.  Below is a synopsis:

  • Increase the gas tax by $0.23 per gallon (effective November 1, 2016);
  • Finance an eight-year $16 billion transportation program;
  • Decrease the New Jersey sales tax from 7% to 6.875% on January 1, 2017 and ultimately to 6.625% on January 1, 2018;
  • Increase the NJ Estate Tax exemption from $675,000 to $2 million for decedents dying on or after January 1, 2017 with a complete elimination of the estate tax for any decedent dying on or after January 1, 2018;
  • Increase the Earned Income Tax Credit from 30% of the federal limit to 35%;
  • Increase the gross income tax exclusion for retirement and pension income; and
  • Create a new income tax deduction for veterans.

Details on Estate Tax Phase-Out

Governor Christie sacrificed the second lowest state gas taxes in the United States to shed New Jersey from its reputation as one of the most expensive places to die in the United States.

However, the new legislation does not mention the New Jersey Inheritance Tax, which is imposed on the beneficiaries of a New Jersey estate based on the amount each beneficiary receives and the relationship to the decedent.  Therefore, the current law remains in force, meaning that while transfers to spouses, parents, children, and grandchildren will remain inheritance tax-free, any transfer to someone other than a so-called Class A beneficiary will be subject to the Inheritance Tax (e.g. sibling, aunt/uncle, niece/nephew, friend, etc.).  Further, whereas nonresidents were exempt from the New Jersey Estate tax, any nonresident who owns real estate or tangible property located in New Jersey would be subject to the Inheritance Tax.


Retirement Income Exclusion

Under the new legislation, the personal income tax pension and retirement income exclusion will increase over the next four years to $100,000 in 2020, as follows:

Filing Status  2017 2018 2019 2020
Married Filing Jointly $40,000 $60,000 $80,000 $100,000
Single $30,000 $45,000 $60,000 $75,000
Married, Filing Separately $20,000 $30,000 $40,000 $50,000


However, the exclusions are eliminated completely for any taxpayer whose gross income exceeds $100,000, including the pension/retirement income.  For example, under the new law, a married taxpayer who received $90,000 in retirement benefits and $15,000 of other income would not enjoy any benefit from the new law.  


How Does it Impact You? 

For many, the new legislation is great news!  It means a lower likelihood that retirees/grandparents will move away from their adult children in order to avoid the New Jersey estate tax and will result in lower New Jersey income taxes.  However, the new gas tax increase will likely create an overall higher cost of living for the vast majority of the residents of New Jersey.

As always, it is necessary to review your current estate plan and discuss with us whether any revisions should be made in light of the elimination of the estate tax.  Plans that were based on the current New Jersey estate tax exemption of $675,000 may not accomplish your objectives and could result in unintended adverse consequences.