New Jersey modifies local payroll tax

New Jersey legislation allows any municipality with a population of 200,000 or more to impose an employer payroll tax. Previously, a municipality had to collect or adopt the tax during the two-year period prior to July 1, 1995.

Jersey City can now impose tax. Newark was the only municipality authorized to impose an employer payroll tax before the legislation was enacted. Now, Jersey City may also impose the tax.

Exception for residents. The legislation also authorizes an exception to the tax for wages of employees who are residents of the municipality.

Lower rate possible. The maximum local employer payroll tax rate is 1%. However, legislation explicitly allows a municipality to impose the tax at a lower rate. Previously, New Jersey law did not explicitly authorize rates lower than 1%.

Tax to benefit schools. Finally, payroll tax revenues now must go to schools if the municipality’s median household income is $55,000 or more. (Ch. 68 (A.B. 4163), Laws 2018, effective July 24, 2018.)

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