New College Tuition Deductions and Credits

On June 29, 2021, New Jersey Governor Phil Murphy signed P.L. 2021 Ch. 128, the New Jersey College Affordability Act (CAA). The CAA makes several changes to the gross income tax, the aim of which is to make a college education more affordable to New Jersey taxpayers.

The act provides for a one-time dollar-for-dollar matching grant of up to $750 for individuals when a new New Jersey Better Educational Savings Trust 529 College Savings Plan (NJBEST) account is initially opened. The CAA also offers a dollar-for-dollar Gross Income Tax (GIT) deduction, not to exceed $10,000, for contributions into a NJBEST account.  This deduction is available to taxpayers whose gross income of $200,000 or less.

The new law provides the same GIT deduction for tuition payments to an in-state institution of higher education related to the enrollment or attendance of a spouse or dependent of the taxpayer at the in-state institution of higher education. This deduction is available to taxpayers whose gross income of $200,000 or less.

Additionally, the CAA offers a $2,500 maximum GIT deduction for payments of principal and interest paid on a student loan under the New Jersey College Loans to Assist State Students Loan Program. This deduction is available to taxpayers whose gross income of $200,000 or less. Regarding the new GIT provisions, gross income shall not include earnings on a Cloverdell education savings account, a qualified tuition program account or a qualified Achieving a Better Life Experience (ABLE) account.

The above provisions are effective immediately, and will apply to tax years beginning after June 29, 2021, and thereafter.

The Temporary Suspension of Employer Withholding Rules for Teleworking Workers Ends

Prior to October 1, 2021, during the temporary period of the COVID-19 pandemic, the Division of Taxation  stated that wage income would continue to be sourced based on the employer's jurisdiction. The Division noted that because of the reciprocal agreement between New Jersey and Pennsylvania, New Jersey nonresident income tax is not required on wages for services performed within New Jersey by Pennsylvania residents.

Effective October 1, 2021, the temporary relief during the period of the COVID-19 pandemic ends. Thus, as of this date, employers should resume sourcing income based on where the teleworker's service or employment is performed and withhold New Jersey income tax from wages sourced to New Jersey.

Corporation Business Tax (CBT) Nexus

As a result of the COVID-19 pandemic, some employees who normally work at a location outside of New Jersey are required to work from their New Jersey homes. The Division temporarily waived the corporation business tax (CBT) nexus standard that is generally met if an out-of-state corporation has an employee working in this state. Thus, as long as the out-of-state corporation did not otherwise meet any of the factors giving rise to nexus other than employees working from home in New Jersey solely due to the pandemic, the Division did not consider the out-of-state corporation to have nexus for CBT purposes during this waiver time period.

This waiver of the CBT nexus for employees working in New Jersey as a result of the pandemic no longer applies on and after October 1, 2021. Thereafter, the pre-pandemic CBT nexus standard applies whereby an employee working from home will create CBT nexus for an employer because working at a location in New Jersey is considered a physical presence in the state.

Sales Tax Nexus

As a result of the COVID-19 pandemic, some employees were required to work from their New Jersey homes. The Division temporarily waived the sales tax nexus standard that is generally met if an out-of-state seller has an employee working in New Jersey. Thus, as long as the out-of-state seller did not maintain any physical presence other than employees working from home in New Jersey solely due to the pandemic and was below the economic activity thresholds—if the seller's gross revenue from delivery of tangible personal property, specified digital products, or taxable services into New Jersey in the calendar year or the prior calendar year exceeds $100,000; or the seller sold tangible personal property, specified digital products, or taxable services for delivery into New Jersey in 200 or more separate transactions during the calendar year or the prior calendar year, as enacted by P.L. 2018, c. 132—the Division did not consider the out-of-state seller to have nexus for sales tax purposes during this waiver time period.

This waiver of Sales Tax nexus for employees working in this State as a result of the pandemic no longer applies on and after October 1, 2021.  On and after October 1, 2021, the pre-pandemic sales tax nexus standard applies whereby an employee working from home will create a sales tax nexus for an employer, because working at a location in New Jersey is considered physical presence in New Jersey.

Mark. H. Levin, CPA, MS (taxation), was previously Tax Manager for Anchin, Block & Anchin, LLP and an adjunct assistant professor in the York College/CUNY department of accounting.  He has worked in the field of public accounting since 1961 and has specialized in taxes since 1972.  He is a member of the AICPA and NYSSCPA. He is past Chair of the Society’s New York, Multistate, and Local Taxation and has been an active member of that committee since 1986.  Mr. Levin previously chaired the sub-committee on Relations with New York City.  He has also served as a member of the NYSSCPA's Tax Division Oversight Committee.  He was a member of both the New York State Department of Taxation and Finance Commissioner's Advisory Council and the New York City Finance Commissioner's Advisory Council.