By Payroll and Entitlements Editorial Staff
New legislation enacted September 29, 2020, made several changes to the New Jersey tax rates. Specifically, the new law increases the 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.
Effective immediately, employers must withhold income tax at the rate of 21.3% 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 withholding for the year since the new tax rate is retroactive to January 1, 2020.
In addition, revised percentage method tables were issued reflecting the higher tax rates. However, the rates represent withholding for a full tax year and do not reflect the “catch up” rate of 21.3%.
The Division of Taxation will not impose interest or penalties for insufficient payment of estimated tax and/or withholding that may be due before September 29, 2020, if the underpayment is a result of the new tax rate. (Ch. 2020-94 (A.B. 10), Laws 2020, effective September 29, 2020; New jersey Division of Taxation Reminder, October 2, 2020; https://www.state.nj.us/treasury//taxation/git2020taxrate.shtml).
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