New Jersey Gas Tax
Governor Christie signed new tax legislation in October that made changes to not only the gas tax but also the estate and sales tax rates in the state of New Jersey. New Jersey was once the 49th ranked state in gasoline tax prior to this deal, after January 1st, 2017, they will be 4th highest in the republic[1].
But what gets lost in the outcry of the gas tax increase are the offsetting or let us say the coming of age estate tax limitations that go along with it in New Jersey. The increase in the New Jersey exclusion amount goes from $675,000 to $2,000,000 for decedents dying on or after January 1st, 2017, and is eliminated completely for decedents dying on or after January 1, 2018[2].
So what does that mean? According to Red Bank, New Jersey estate planning attorney Joseph Asterita, Esq. of Bonfiglio & Asterita, “By way of comparison, for a 2016 estate valued at $3,500,000 passing to children, the estate would owe a $229,200 New Jersey estate tax. This tax would be reduced to $129,600 for 2017 estates and eliminated completely in 2018.”
Mr. Asterita says, “With this change in the law, many estate plans will likely need to be revised to avoid unintended consequences. For example, a common planning technique of funding tax shelter trusts by formula will need to be reviewed and revised to prevent the unnecessary funding of certain trusts and the possible disinheritance of a spouse. In addition, the new law may affect how assets get divided between beneficiaries and what assets qualify for a step-up cost basis.”
New Jersey is also one of 6 states that have an inheritance tax. This tax is based upon the relationship of the recipient to the decedent. Notably, the inheritance tax exempts transfers to spouses, children, and lineal decedents in any amount. While certain relatives receive preferential tax rates, the inheritance tax on all other is a flat tax of 15-16%. The inheritance tax is imposed on amounts starting at $500.
[3] Additional changes being made by this bill are as follows:
· Nov 1st, 2016 – NJ gasoline tax will increase by 23 cents per gallon. Going from 14.5 cents to 37.5 cents. This is the first increase since 1988.
· Jan 1st, 2017 – NJ sales tax will decrease from 7% to 6.875% and on Jan 1st, 2018, down to 6.625%
· The earned income credit will increase from 30% to 35% of the federal credit for taxable years beginning on or after Jan 1st, 2016.
· Veterans who were honorably discharged or honorably released from service will receive a personal exemption from income tax equal to $3,000.
New Jersey is a state that has been abandoned by retirees for many reasons but one of the main culprits was certainly the antiquated estate tax limitations. This is a step in the right direction but unfortunately law makers cannot control the main reason retirees leave…the winter.
Michael Anicito, CFP®
[1] According to API.org (http://www.api.org/oil-and-natural-gas/consumer-information/motor-fuel-taxes/gasoline-tax)
[2] Marcus, Samantha (2016 October) ‘Here’s How Your Lawmaker Voted on N.J.’s 23-cent Tax Hike (http://www.nj.com/politics/index.ssf/2016/10/heres_how_your_lawmaker_voted_on_njs_23-cent_gas_t.html).
[3] Marcus, Samantha (2016 October) ‘Here’s How Your Lawmaker Voted on N.J.’s 23-cent Tax Hike (http://www.nj.com/politics/index.ssf/2016/10/heres_how_your_lawmaker_voted_on_njs_23-cent_gas_t.html).
