2020 Potential Tax Savings from New Jersey Business Alternative Income Tax (BAIT) 新泽西州商业替代所得税(BAIT)为高收入者节省税

On Jan. 13, Governor Murphy signed the Pass-Through Business Alternative Income Tax Act into law. This act allows pass-through businesses to pay income taxes at the entity level instead of the personal level. This helps business owners mitigate the negative impact of the federal SALT deduction cap. It’s estimated to save New Jersey business owners $200 to $400 million annually. And it won’t cost New Jersey a dime because it’s revenue neutral for the state.

Under the act, 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. There is no limit on the deduction of state taxes paid at the entity level under the federal Tax Cuts and Jobs Act (TCJA), only at the individual income level. Currently, pass-through business owners can only deduct up to $10,000 in state and local taxes on their personal income taxes.

For New Jersey tax purposes, income and losses of a pass-through entity are passed through to its members. However, for taxable years beginning on or after January 1, 2020, pass-through entities may elect to pay a Pass-Through Business Alternative Income Tax due on the sum of each of the member’s share of distributive proceeds. The member(s) may then claim a tax credit for the amount of tax paid by the pass-through entity on their share of distributive proceeds. In CINDIE’s opinion, the new options could benefit high income NJ tax payers in 2 ways :

  1. Lower NJ tax rate of $150K+ portion from current 6.37% 8.97% 10.75% to 5.68%
  2. Receive deductions of state tax on the business federal income

Contact CINDIE:

CINDIE is a boutique Certified Public Accounting firm and a business consulting company.

Address: 200 Centennial Avenue, Suite 106, Piscataway, NJ 08854

Phone: (732) 896-0272 Email: cpa@cindiellc.com

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Reference:

  1. Detailed related State Law can be find on this site https://www.state.nj.us/treasury/taxation/baitpte-faq.shtml
  2. New Jersey Business Alternative Income Tax (BAIT) Rate
Sum of Each Member’s Share of Distributive ProceedsTax Rate
First $250,0005.68%
Amount over $250,000 but not over $1 million ($14,187.50 plus 6.52% of excess over $250,000)6.52%
Amount over $1 million but not over $5 million ($63,087.50 plus 9.12% of excess over $1 million)9.12%
Amount over $5 million ($427,887.50 plus 10.9% of the excess over $5,000,000)10.90%

3. New Jersey 2020 Individual Rate

New legislation enacted September 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 January 1, 2020, the tax rate on that income bracket increases from 8.97% to 10.75%, regardless of filing status. Income over $5 million is already subject to this rate. The New 2020 Rate table could look like this:

$0to$20,0001.40%
$20,001to$35,0001.75%
$35,001to$40,0003.50%
$40,001to$75,0005.53%
$75,001to$500,0006.37%
$500,001to$1,000,0008.97%
$1,000,001toInfinity10.75%
Single filing status
$0to$20,0001.40%
$20,001to$50,0001.75%
$50,001to$70,0002.45%
$70,001to$80,0003.50%
$80,001to$150,0005.53%
$150,001to$500,0006.37%
$500,001to$1,000,0008.97%
Married filing status

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