New Jersey Tax Guide 2026

Income tax brackets (single)

2026 single brackets: • 1.4% — to $20,000 • 1.75% — to $35,000 • 3.5% — to $40,000 • 5.525% — to $75,000 • 6.37% — to $500,000 • 8.97% — to $1,000,000 • 10.75% — over $1,000,000 MFJ uses similar progression but the $1M top bracket is identical (no marriage relief at the top). No separate capital gains rate — taxed as ordinary income. No §1202 QSBS conformity exclusion at state level for gains earned by NJ residents.

Inheritance tax — the often-overlooked NJ trap

NJ inheritance tax (N.J.S.A. 54:34) is paid by the estate but calculated based on the relationship of each beneficiary: • Class A (spouse, civil union partner, child, grandchild, parent, stepchild, mutually-acknowledged child) — FULLY EXEMPT • Class C (sibling, son/daughter-in-law) — First $25,000 exempt; then 11%–16% sliding • Class D (everyone else — friends, nieces, nephews, distant relatives) — 15%–16% with NO exemption (first dollar taxed) • Class E (qualifying charities, public agencies) — Exempt A $500,000 bequest to a niece triggers ~$77,500 of NJ inheritance tax. A bequest to a friend triggers similar. This is why estate planning for unmarried/childless NJ residents requires careful structuring (trusts, lifetime gifts) — even with the $13.99M federal exemption, NJ takes the first 15%–16% on any non-Class A transfer. Form IT-R due 8 months from death; interest accrues after.

Property tax — the highest burden in America

NJ averages ~2.23% effective property tax — by some measures, the highest in the US. Bergen County: ~1.8%; Essex: ~2.4%; Camden: ~2.7%; Hudson: ~1.7%. Median home value $500k+ in many suburbs → $12k–$18k annual property tax is typical for a middle-class family home. Homestead Benefit (now ANCHOR Program): $1,500 credit for homeowners under $150k income owning since pre-2021; $1,000 above $150k–$250k. Renters get $450. Plus Senior Freeze for 65+. No 1% statewide cap — local levies float with budgets. The 2% levy cap law (P.L. 2010, c. 44) restricts annual local levy increases, but with exemptions for healthcare, pensions, and emergencies that have eroded the cap in practice.

Sales and use tax

6.625% state. NO local sales tax outside the 32 Urban Enterprise Zones (where reduced 3.3125% applies for purchases at qualified businesses). Exemptions: clothing under $110/item (year-round, distinctive in the US), groceries, prescription drugs, most services. Sales tax holiday September 2025 onward for back-to-school items pending review. Economic nexus: $100,000 OR 200 transactions (post-Wayfair, N.J.S.A. 54:32B-3.5).

Business Alternative Income Tax (BAIT) — the PTET

BAIT (N.J.S.A. 54A:12, enacted 2020) lets S-corps, partnerships, and LLCs taxed as partnerships elect to pay state income tax at the entity level — fully federally deductible, bypassing the $40k SALT cap (OBBBA extension). 2026 BAIT rates (graduated by aggregate distributive share): • 5.675% — first $250,000 • 6.52% — $250k–$1M • 9.12% — $1M–$5M • 10.9% — over $5M Election: due by March 15 (or 15th day of 3rd month of fiscal year); irrevocable for the year. Owners receive refundable NJ tax credit for their share of BAIT paid. NJ permits BAIT to be paid in lieu of the corporate-business minimum tax for S-corps. Federal benefit: 37% federal × full BAIT amount = ~$3.70 of federal tax saved per $10 of BAIT paid (for high earners). For a partner owing $100k of NJ tax, BAIT saves ~$37k in federal liability.

Corporate Business Tax (CBT)

9% on C-corp NJ-allocated income. Surtax: 2.5% on income over $10M extended through 2028 (Governor Murphy's compromise package). Effective top rate for large corporations: 11.5%. Single-sales-factor apportionment for most industries (since 2014). Combined reporting required since 2019 (mandatory for unitary groups). S-corp election: NJ no longer automatically conforms — file Form CBT-2553 with NJ Division of Taxation in addition to the federal Form 2553. Owners of NJ S-corps pay personal income tax on flow-through plus the entity-level CBT minimum.

Self-employed considerations

NJ is among the most expensive states for self-employed high earners. The 10.75% top bracket plus 2.23% property tax plus 16% inheritance tax on bequests to non-direct family compounds quickly. LLC formation: $125 NJ Division of Revenue. Annual Report: $75. Single-member LLCs file partnership returns if multi-member or are disregarded if single-member. Unemployment tax (UI/DI/FLI): combined employee rate ~0.85% on first $43,300 wage base 2026; employer rate varies 0.6%–7.7%. Temporary Disability Insurance (TDI) and Family Leave Insurance (FLI) are mandatory in NJ — most generous in the US for paid leave.

Worked example: Marcus & Lena Hoffmann, married, Princeton residents (2026)

Marcus is a NJ partner at a Philadelphia consulting firm, K-1 income $850,000. Lena is a NJ-resident W-2 ($180,000). They own a $1.2M Princeton home (property tax $24,000/yr). Marcus inherits $400,000 from a deceased aunt (no spouse, no children).

Federal: Combined ordinary income ~$1.03M → marginal 37%. NJ personal: Combined gross ~$1.03M, hits 8.97% bracket; assume slight 10.75% slice for spillover effects. Tax (approx): $80,000 NJ personal income tax. Property tax: $24,000 (federally limited by $40k OBBBA SALT cap, paired with state tax). Inheritance tax on $400k from aunt (Class D, no exemption): $400,000 × ~15.5% blended = ~$62,000. BAIT election (Marcus's firm): Firm pays NJ BAIT on Marcus's $850k share at 9.12% blended ≈ $77,500. Federal SALT-cap workaround saves ~$28,700 federal tax. NJ refundable credit zeros out his $76k personal NJ liability on K-1 income. Net annual NJ burden: Lena's $180k income tax (~$8k) + $24k property tax + Marcus federal benefit from BAIT. Inheritance tax on aunt's gift is one-time, not annual.

Statute references

• Inheritance tax — N.J.S.A. Title 54, Chapter 34
• Business Alternative Income Tax (BAIT/PTET) — N.J.S.A. 54A:12-1 et seq.
• Gross Income Tax (personal income) — N.J.S.A. 54A:1-1 et seq.
• Sales and use tax + Wayfair — N.J.S.A. 54:32B; 54:32B-3.5
• Corporate Business Tax — N.J.S.A. 54:10A
• Property tax levy cap (2% cap) — N.J.S.A. 40A:4-45.44

Related pages

• PTET Analyzer →
• Estate Tax Calculator →
• State Tax Comparison →