New Jersey — Personal Income Tax

New Jersey imposes a Gross Income Tax on the gross income of every individual, estate, and trust (except charitable trusts and pension or profit-sharing trusts). The tax applies to residents on their worldwide income and to nonresidents on income from New Jersey sources.

Residents must file if their gross income from all sources exceeds the filing threshold. Nonresidents must file if they have income from New Jersey sources and their total gross income for the year exceeds the threshold. Part-year residents who move into or out of New Jersey during the year may need to file both a resident return (Form NJ-1040) for the portion of the year they were residents and a nonresident return (Form NJ-1040NR) if they had New Jersey-source income while nonresidents.

For filing status Single or Married Filing Separately, the threshold is $10,000; for Married Filing Joint, Head of Household, or Qualifying Surviving Spouse, the threshold is $20,000. Pennsylvania residents who work in New Jersey are generally exempt from New Jersey income tax on wages under the reciprocal agreement between the two states.

Source: N.J.S.A. 54A:2-1 Source: NJ Division of Taxation, Part-Year Residents and Nonresidents Guide (GIT-6) Source: NJ Division of Taxation, Income Tax Resource Center

New Jersey imposes a graduated income tax with rates ranging from 1.4% to 10.75%. The brackets differ by filing status. For married individuals filing jointly, heads of household, and qualifying surviving spouses, there are eight tax brackets. For single filers, married individuals filing separately, estates, and trusts, there are seven brackets.

The lowest rate of 1.4% applies to taxable income not over $20,000 (both filing statuses). The top rate of 10.75% applies to taxable income over $1,000,000 for joint filers, heads of household, and surviving spouses, and over $500,000 for single filers and married filing separately. Intermediate brackets apply rates of 1.75%, 3.50%, 5.525%, 6.37%, 8.97%, and (for certain filers) 10.75% at different income thresholds.

Taxpayers with New Jersey taxable income under $100,000 may use either the tax table or tax rate schedules published by the Division of Taxation. Taxpayers with taxable income of $100,000 or more must use the tax rate schedules.

Source: N.J.S.A. 54A:2-1 Source: NJ Division of Taxation, NJ Income Tax Rates

New Jersey gross income is defined by statute to consist of specific enumerated categories. The statute lists sixteen categories: (a) salaries, wages, tips, fees, commissions, bonuses, and other remuneration for services; (b) net profits from business; (c) net gains or income from disposition of property; (d) net gains or income from rents, royalties, patents, and copyrights; (e) interest; (f) dividends; (g) gambling winnings; (h) net gains or income from estates or trusts; (i) income in respect of a decedent; (j) distributions from employee trusts; (k) distributive share of partnership income; (l) prizes and awards; (m) rental value of employer-furnished residence; (n) alimony and separate maintenance payments; (o) income from crimes or offenses; and (p) net pro rata share of S corporation income. Each category has detailed statutory rules.

Source: N.J.S.A. 54A:5-1

New Jersey defines a resident taxpayer as an individual domiciled in the state, unless they maintain no permanent abode in New Jersey, maintain a permanent abode elsewhere, and spend no more than 30 days in New Jersey during the tax year. An individual not domiciled in New Jersey is also treated as a resident if they maintain a permanent home in New Jersey and spend more than 183 days in the state during the tax year (the "statutory resident" test). Domicile is the place considered a permanent home—the place to which an individual intends to return after an absence. A person can have only one domicile, and it continues until a new domicile is established elsewhere with intent to abandon the New Jersey domicile.

Source: NJ Division of Taxation, Part-Year Residents and Nonresidents Guide (GIT-6)

New Jersey allows taxpayers to claim personal exemptions that reduce gross income. Each taxpayer is entitled to a $1,000 personal exemption. Resident taxpayers may claim an additional $1,500 exemption for each dependent who qualifies as wholly dependent and for whom the taxpayer provides chief support. An additional $1,500 exemption is allowed for a spouse or civil union partner if wholly dependent on the taxpayer. Taxpayers age 65 or over, or blind, may claim an additional $1,000 exemption; the same exemption applies for a spouse or civil union partner age 65 or over, or blind. An additional $1,000 exemption is allowed for each dependent child under age 22 who is enrolled full time at an accredited institution of higher education.

Source: N.J.S.A. 54A:3-1

New Jersey taxes nonresidents only on income derived from sources within the state. N.J.S.A. 54A:5-8 enumerates six categories of New Jersey-source income for nonresidents:

Statutory categories of New Jersey-source income

1. Real and tangible personal property — Income by reason of ownership or disposition of any interest in real or tangible personal property located in New Jersey.

1. Personal services and business activities — Income from a trade, profession, or occupation carried on in New Jersey, or for personal services performed in New Jersey. This category applies a physical-presence test: services must be actually performed within the state to be New Jersey-source income.

1. Distributive share of pass-through income — A nonresident partner's distributive share of income from an unincorporated business, profession, enterprise, or other activity, to the extent the income results from work done, services rendered, or other business activities conducted in New Jersey (except as allocated to another state under regulations).

1. Intangible property employed in a New Jersey business — Income from intangible personal property (including securities and commodities as defined in IRC § 475) employed in a trade, profession, occupation, or business carried on in New Jersey. The statute specifies that "purchase, holding and sale of intangible personal property" includes incidental activities such as commitment fees, breakup fees, and income from securities lending.

1. Lottery and wagering — Income from any lottery or wagering transaction in New Jersey, other than amounts excluded under N.J.S.A. 54A:6-11.

1. S corporation income — S corporation income allocated to New Jersey of a New Jersey S corporation.

Pensions and annuities excluded

New Jersey specifically excludes pensions and annuities from nonresident source income under N.J.S.A. 54A:5-8(b). A nonresident's pension or annuity income is not subject to New Jersey tax even if the pension was earned while working in New Jersey.

Convenience-of-employer rule for certain state residents

Effective July 21, 2023, New Jersey adopted a reciprocal convenience-of-employer sourcing rule under P.L. 2023, c.125. For nonresidents who are residents of Delaware, Nebraska, or New York—states that impose their own convenience-of-employer rules—New Jersey now applies the same rule in reverse. Under N.J.S.A. 54A:5-8(e), if a nonresident of New Jersey who lives in one of these states earns employee compensation from a New Jersey employer for personal services performed outside New Jersey that were not required by the employer to be performed outside New Jersey, and the nonresident's home state would source similar income to the employer's location based on convenience of the employee, then New Jersey treats that compensation as New Jersey-source income subject to tax.

In practice, this means compensation earned by a telecommuting New York resident working for a New Jersey employer will be deemed New Jersey source income by applying New York's convenience-of-employer rule, unless the work is performed remotely due to employer necessity rather than employee convenience. The Division of Taxation has confirmed that New Jersey employers must withhold New Jersey Gross Income Tax on Delaware, Nebraska, and New York resident employees who work remotely for their own convenience.

This rule does not apply to Pennsylvania residents, who remain exempt from New Jersey income tax on wages under the reciprocal agreement between the two states.

Allocation when income is earned partly within and partly outside New Jersey

When a nonresident earns income from sources partly within and partly outside New Jersey, and the New Jersey portion cannot readily or accurately be ascertained, N.J.S.A. 54A:5-7 authorizes the Director of the Division of Taxation to prescribe uniform apportionment or allocation rules.

Source: N.J.S.A. 54A:5-8 Source: N.J.S.A. 54A:5-7 Source: NJ Division of Taxation, Convenience of the Employer Sourcing Rule FAQ