DIFFERENCES BETWEEN FEDERAL AND NEW JERSEY TAX LAW

DIFFERENCES BETWEEN FEDERAL AND NEW JERSEY TAX LAW

 General  Losses are not permitted anywhere on the New Jersey tax return; leave line blank  Itemized Medical Expense in excess of 2% of NJ Gross Income reduce taxable income.  NJ allows either a Property Tax Deduction or a Property Tax Credit  NJ allows a credit for Income Taxes paid to other jurisdictions.  No deduction for Sales Tax

Exemptions - Line 6  Taxpayer always gets a deduction for self on New Jersey return May be disallowed on Federal return  Civil Union Partner Exemption allowed on New Jersey return Not allowed on Federal return  Domestic Partner Exemption allowed on New Jersey return Not allowed on Federal return

Exemptions - Line 7  Additional Exemptions for age on New Jersey return  Addition(s) to Standard Deduction for age on Federal return  Civil Union Partner allowed on New Jersey return Not allowed on Federal Return

Exemptions - Line 8  Additional Exemptions on New Jersey return if Blind or Disabled  Addition(s) to Standard Deduction on Federal return for blind No addition(s) to Standard Deduction on Federal return for disability  Civil Union Partner allowed on New Jersey return Not allowed on Federal return

Exemptions - Line 11  Additional Exemption(s) on New Jersey return TaxWise: Must be entered  Adjustment to income or tax credit on Federal return

Income not taxable on New Jersey return   Federal Social Security and Tier 1 Railroad Retirement Benefits May be partially taxable on Federal return  Tier 2 Railroad Retirement Benefits May be fully or partially taxable on Federal return

Income not taxable on New Jersey return   United States military pensions reported on Form 1099-R by the US Defense and Accounting Service Fully taxable on Federal return   Qualifying scholarships or fellowship grants May be fully or partially taxable on Federal return   Unemployment Compensation Fully taxable on Federal return

Income not taxable on New Jersey return   New Jersey Lottery winnings Fully taxable on Federal return [Maybe offset with a Schedule A entry for gambling losses]   Interest and capital gains from direct Federal obligations exempt under law Fully taxable on Federal return

Income not taxable on New Jersey return  Distributions paid by mutual funds attributable to interest earned on Federal obligations Fully taxable on Federal return  Certain distributions from New Jersey Qualified Investment Funds Fully taxable on Federal return

Income not taxable on New Jersey return   Homestead rebates and Property Tax Reimbursements May be taxable or reduce Schedule A deduction on Federal return

Line 14 - Wages: Box 16 (State Wages) from the W-2(s) must be used on Form NJ-1040, Line 14. This box is often different than Box 1 (Wages )

Line 15 a – Taxable Interest Income  Taxable categories differ from Federal rules See New Jersey Instructions and Chapter 7 Publication 17.  TaxWise: Make these adjustments on the Interest Statement worksheet and/or the Dividend Statement worksheet.

Line 15b – Tax Exempt Interest  Exempt Categories differ from Federal rules See New Jersey Pub GIT-5.  TaxWise: Make these adjustments on the Interest Statement worksheet and/or the Dividend Statement worksheet.

Line 18 – Net gains from disposition of property: Exclude gains and losses from NJ Exempt securities as defined in GIT-5.  TaxWise: Make adjustments with a scratch pad to NJ Schedule B line 1. [See NJ EFC Handbook, pages 16 & 17.]

Line 19 – Pensions, Annuities and IRA Withdrawals  Exclude:  Federal Social Security  Railroad Retirement (Tier 1 and Tier 2) TaxWise: Check Railroad Retirement box on the 1099-R screen.  United States military pensions [See TAX TIP for Line 19] TaxWise: Check box 2 of the 1099-R screen.

Line 19 – Pensions, Annuities and IRA Withdrawals  General Rule or 3 Year Rule (if applicable) allowed for NJ calculation. TaxWise: If 3 Year Rule is/was used, adjustment to lines 19 will be required. [See NJ EFC Handbook, page 16.]  Federal tax exempt distributions from an IRA for charitable gifts are NJ taxable.  TaxWise: Must complete NJ IRA Withdrawal Worksheet for every IRA withdrawal

Line 23 – Net Gambling Winnings:  Net gambling winnings (excluding New Jersey Lottery winnings and losses) are reported. TaxWise: Fill in gambling losses on the W-2G screen even if Schedule A will not be used. If the winnings are from the NJ lottery, check the state return box on the W-2G screen. NJ Lottery losses are only entered on a W-2G reporting NJ Lottery winnings.

Line 27a – Pension Exclusion Line 27 b – Other Retirement Income Line 27 c – Total exclusion  Allowed within age and income restrictions.  Unused Pension Exclusion amount may be carried over to Line 27 b - Other Retirement Income Exclusion. Paper returns use Worksheet D TaxWise: Automatic Calculation

Line 28 – Gross Income  If gross income is less than $20,000 ($10,000 Single or Married-Sep), no NJ Tax return is required. Return should be filed if a refund is due. TaxWise: If federal return is being e-filed and no NJ return is required for any reason, then check paper return on page 3 of the NJ When it prints, write “DO NOT FILE” on it. However, if a tenant rebate is requested, e-file the NJ return, even if it is not needed for any other reason.

Line 30 – Medical Expenses  Out-of-pocket expenses exceeding 2% of NJ Gross Income (line 28). If doing manually, complete Worksheet E. TaxWise: enter medical expenses on the Schedule A detail worksheet, even if Schedule A will not be filed.  Pre-tax Federal/After-tax NJ medical deductions (Flex Savings Accounts, for example) should be included as NJ medical expenses. TaxWise: enter these using a scratch pad to line 30. (See NJ EFC Handbook, page 17.)

Line 36a - Property Tax Paid  Property Tax Due and Paid on taxpayers qualified principal residence. May be equal to, less than or greater than the amount deducted on Schedule A, Form  Use the amount shown for Real Estate Tax from Form 1098, sum of actual payments and/or 18% of principal residence rent paid. TaxWise: Amount must be entered on page 3, Schedule 1, Line 1 Property taxes you paid ….

Line 36b – Home Owner?  Line 36b should not be completed if Taxpayer is a tenant or is not a homeowner on October 1 of Tax Year

Line 36c - Property Tax Deduction or Line 48 Property Tax Credit  Use Schedule 1 to determine the greater benefit. Only one of these lines can be used. Property taxes and/or 18% of rent paid on principal residence only.  Taxpayers eligible for Property Tax Reimbursement must use base year property tax as Property Tax Paid TaxWise: enter property tax and/or rent on Schedule 1 on page 3 of the return. Do not make entry on 36c or 48.

Line 50 - NJEITC:  An individual who is eligible for a federal earned income tax credit will be allowed a NJEITC credit equal to a percentage of the federal earned income tax credit allowed.  The percentage of the federal earned income tax credit allowed for Tax Year 2008 will be 22.5% TaxWise: Automatic Calculation

Lines 51 & 52 - Excess UI/DI :  If two or more employers, complete Form 2450 to determine if excess UI/DI was withheld. UI/DI information is usually found in Box 14 of the W-2 Statement. TaxWise: UI/DI always entered in Box 14. Confirm entries on the W-2 screen read “NJSDI” and “NJSUI”. If needed, Form 2450 will calculate automatically.

DIFFERENCES BETWEEN FEDERAL AND NEW JERSEY TAX LAW