Jan 15 Governor Murphy Signs “Pass-Through Business Alternative Income Tax” Bill to Help New Jersey Taxpayers
New Jersey Governor Phil Murphy signed the bill S-3246, called the “Pass-Through Business Alternative Income Tax Act” on Monday, January 13, 2020 to help business owners save federal income tax through state tax deductions at the entity level. The bi-partisan legislation was advanced by the full Assembly and passed 77-0. The bill is an effort to alleviate burden on an individual’s income tax by allowing business owners to pay income tax at the entity level instead of at the individual level. The law is effective for taxable years beginning on or after January 1, 2020.
Taxable income from a pass-through entity is reported on the personal income tax return of the members of the pass-through entity and taxed at individual income tax rates. The state tax payments are now limited as a federal personal itemized deduction to no more than $10,000 per year. State tax payments are not capped for businesses so they can reduce the federal taxable income passed on to their members. Under the bill, taxpayers who earn income from pass-through businesses and pay the pass-through business alternative income tax can obtain a refundable gross income tax credit on their personal income tax return.
Sax will continue to keep you updated on tax alerts as they emerge. For any questions with regards to the Pass-Through Business Alternative Income Tax Act, please reach out to a Sax advisor at (973) 472-6250 or visit www.saxllp.com.