New Jersey Employers Must Increase Withholding Now for Employees Earning More Than $1 MIllion
New legislation enacted Sept. 29, 2020, made several changes to the New Jersey Gross Income Tax Act as part of New Jersey's fiscal year 2021 budget. The new law increases the gross income tax rate for income between $1 million and $5 million and provides a new withholding rate for the remainder of 2020.
Effective Jan. 1, 2020, the tax rate on that income bracket increases from 8.97 percent to 10.75 percent, regardless of filing status. Income over $5 million is already subject to this rate.
The New Jersey Division of Taxation has advised that, effective immediately, employers must withhold income tax at the rate of 21.3 percent from salaries, wages and other remuneration in excess of $1 million, but not in excess of $5 million, during the taxable year. This higher withholding rate allows taxpayers affected by the rate increase to "catch up" on their withholdings for the year since the new tax rate is retroactive to Jan. 1.
The Division of Taxation has stated that it will not impose interest or penalties for insufficient payment of estimated tax and/or withholdings that may be due before Sept. 29, 2020, if the underpayment is a result of the new tax rate.