As of Jan. 1, 2018, New Jersey no longer has an estate tax. The tax was phased out over a period of years and is now nonexistent. This means that regardless of the size of the estate, if someone dies in or after January 2018, their estate owes nothing to the state of New Jersey. Depending on the size of the estate, however, some taxes might still be owed to the federal government. New Jersey also has an inheritance tax to look out for. If you think you might need help determining if your estate will owe taxes or with estate planning, you may want to enlist the help of a financial advisor. SmartAsset has a financial advisor matching tool that can help you find an advisor in your area who fits your needs.
New Jersey Estate Tax
New Jersey does not levy an estate tax. It is one of 38 states with no estate tax.
What Is the Estate Tax?
Estate taxes are levied on the estate of a recently deceased person. It only applies to estates that reach a certain threshold, which varies by municipality. It is sometimes referred to as the “death tax.”
Don’t confuse the estate tax and the inheritance tax. Inheritance taxes are taken by the government after the money or possessions have been passed to a person’s heirs.
New Jersey Inheritance Tax and Gift Tax
New Jersey has an inheritance tax. How much the inheritor owe to the state depends on their relationship to the deceased.
If your relationship to the person who died is any of the following, you are exempt from the tax: spouse, civil union partner, domestic partner, child, grandchild, great-grandchild, parent, grandparent, mutually acknowledged child or step-child.
You do owe taxes if you are the deceased’s sibling or are the spouse/civil partner of the deceased’s child (i.e. you were married to the deceased’s child, who previously died). Any other relationship not listed also owes taxes. Inheritances left to schools, religious institutions or charitable organizations do not owe taxes.
The tax rate depends on on how big the inheritance is and on your relationship with the deceased.
New Jersey does not have a gift tax. The federal gift tax applies to gifts of more than $14,000 in 2017 and $15,000 in 2018.
Federal Estate Tax
Even though the estate won’t owe an estate tax to New Jersey, it might still owe taxes to the federal government. The federal estate tax exemption is $11.18 million, which increased when the 2017 tax law went into effect. This exemption is portable, meaning if the right legal steps are taken, a married couple can protect up to $22.36 million when both spouses die.
If an estate tax exceeds that amount, the top tax rate is 40%. A full chart of federal estate tax rates is below.
Here’s an example of how it works: Let’s say your estate is worth $18.18 million and you aren’t married. Subtracting the exemption of $11.18 million, creates a taxable estate of $7 million. Consulting the chart, you are in the top bracket. Your base tax payment on the first $1 million is $345,800. You’ll also pay 40% on the remaining $6 million, which comes to $2.4 million. That, plus the base of $345,800, means the federal estate tax burden is $2,745,800.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall New Jersey Tax Picture
The Garden State is moderately tax-friendly for retirees. Social Security is not taxed at the state level. Pensions and retirement account withdrawals are partially taxed. New Jersey’s income tax rate is progressive, with rates ranging from 1.4% to 8.97%. If you’re new to the state or have a new job, you can figure out what your take home pay will be by using this New Jersey paycheck calculator. New Jersey treats capital gains as regular income and it is taxed in the same manner as salary or other income.
With a few exceptions, the sales tax for the whole state is 6.625%. There are 27 urban enterprise zones where the rate is 3.4375%. In Salem county, the rate is 3.5%.
Property taxes in New Jersey are the highest in the nation, the average effective rate is 2.40%.
Estate Planning Tips
- Whether or not you think you might owe any estate tax, it might be worth talking about your financial situation with a professional. SmartAsset has a financial advisor matching tool that can help you find an advisor in your area who suits your needs. First you’ll answer a few questions about yourself and your finances. Then our program will find up to three advisors in your area. The advisors will be given your information and will get in contact with you so you can figure out if you want to work with them. All the advisors on our platform are free of disclosures and are registered financial advisors.
- If you are using a 401(k) to save for retirement make sure you take that into consideration for estate planning. You can use our 401(k) calculator to make sure you know exactly how much you’ll have in your account when it comes time to start withdrawing.
- Contrary to popular belief, establishing a trust is not just for the super wealthy. A trust can be a useful tool for planning your estate, so you might want to consider it.
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