NJ Considers Rate Changes for Composite Tax Returns

Posted on Fri, Aug 23, 2013 ©2021 Drucker & Scaccetti

 

The New Jersey (“NJ”) Division of Taxation (“The Division”) recently announced it is considering changing the tax rates that apply to composite tax returns. Any change in tax rates will be applied for tax years beginning on or after January 1, 2013.  The Division noted that any prospective change in policy will be posted on its website.  We will update our readers if any announcement is made in this regard.

 

Background

Current NJ law provides that the tax due on a composite tax return is calculated using the highest gross income tax rate in effect for single taxpayers for the tax year for which the composite return is being filed (8.97% in 2010-2012) if NJ sourced income is greater than $250,000. Entities preparing and filing the NJ-1080C return for participating taxpayers with NJ sourced income from the entity of less than $250,000 will apply a lesser rate of 6.37%.  The Division allows the use of the two rates in order to encourage non-resident individuals to elect to participate in a composite return.

 

There is no doubt that a composite return can make filing easier, from an administrative standpoint, for non-resident NJ taxpayers.  However, you need to be certain that you meet the state’s requirements to participate in the program.

 

To qualify for participation in a composite return a nonresident must satisfy all of the following conditions:

 

  1. The individual was a nonresident for the entire taxable year;
  2. The individual did not maintain a permanent place of abode in New Jersey at any time during the taxable year;
  3. The individual was not a fiscal year filer;
  4. The individual did not have income derived from or connected with New Jersey sources other than the income reported on composite return(s);
  5. The individual waives the right to claim any New Jersey personal exemption, credit or deduction and agrees to have the tax calculated directly on such income at the appropriate tax rate in effect for composite return participants for the tax year; and
  6. The individual elects to be included in a composite return by completing and delivering to the filing entity a Form NJ-1080-E (Election to be Included in a Composite Return) prior to the filing of the composite return by the entity.

 

CAUTION:  Participating in a composite return may cost you more in NJ taxes then you might otherwise owe if you filed a separate non-resident return.  You should consult your tax advisor.

 

If you would like to know more about New Jersey’s or any other state’s composite filing requirements, contact The Tax Warriors® at Drucker & Scaccetti via the “Ask A Tax Warrior” button below or call us directly at (215) 665-3960.  Our suite of multi-state tax compliance and consulting services coupled with our highly skilled tax advisors has helped thousands of businesses, just like yours, become as administratively and tax efficient as possible with regard to multi-state tax compliance.

Topics: NJ, Returns, Composite Tax Rates, Multi-state taxes, New Jersey

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