SUMMIT, NJ - New Jersey Governor Chris Christie signed legislation October 14 that will replenish the state's Transportation Trust Fund, with the focal point being a 23 cents per gallon gas tax taking effect November 1.
While the new legislation will bring some consumer financial pain at the pump, it also eliminates the estate tax and drastically increases the state income tax exemption for retirement income, positive news for retirees, according to financial planning experts.
"This combination makes New Jersey a more financially friendly place to retire, especially for those looking to remain in the general area," said Claire E. Toth, a tax attorney and Vice President and Chief Operating Officer of Summit-based Point View Wealth Management. "That income exemption will make the state more competitive with Pennsylvania, for instance."
The amount exempt from New Jersey estate tax, currently $675,000, will rise to $2 million next year. The estate tax goes away entirely in 2018.
Currently, single retirees can exempt the first $15,000 of retirement income (pensions and IRA withdrawals - Social Security is already exempt) from New Jersey income tax; couples can exempt the first $20,000. Under the new deal, those amounts will rise to $70,000 and $100,000, respectively.
"Yes, there’s a small sales tax cut, along with some benefits for veterans and those eligible for the earned income tax credit," said Toth, "But this bill is aimed squarely at well-off retirees."
Toth added that "There is a looming downside to all this -- the deal blows an even bigger hole in the state’s budget and its pension funding obligations. Essentially, state officials took three months to decide which goodies to give away in exchange for the gas tax hike and ultimately decided to give them all away."
While the estate tax will disappear, the state inheritance tax remains. This applies to relatively few estates. It taxes money left to persons other than direct descendants -- for example to siblings, nieces and nephews, and to children’s spouses.