SENATE BUDGET AND APPROPRIATIONS COMMITTEE

 

STATEMENT TO

 

SENATE, No. 998

 

STATE OF NEW JERSEY

 

DATED:  FEBRUARY 29, 2016

 

      The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 998.

      This bill increases the personal income tax’s pension and retirement income exclusion fivefold over three years.  The purpose of this bill is to reduce the State’s personal income tax’s capacity to diminish retirement income.

      Generally under current law, taxpayers with $100,000 or less of annual income, who are at least 62 years old, may claim a pension and retirement income exclusion of up to $20,000 for joint filers, $15,000 for individuals, and $10,000 for married but filing separately.

      This bill increases the personal income tax’s pension and retirement income exclusion to $100,000 for joint filers, $75,000 for individuals, and $50,000 for married but filing separately.  The bill phases in the five-fold exclusion increase over three years as follows:

 

Filer Type

Present

Year 1

Year 2

Year 3

Joint

$20,000

$40,000

$80,000

$100,000

Individual

$15,000

$30,000

$60,000

$75,000

Separate

$10,000

$20,000

$40,000

$50,000

 

      The bill is scheduled to apply to taxable years beginning on or after the January 1, first following the date of enactment.

 

FISCAL IMPACT:

      The Office of Legislative Services (OLS) estimates a range of potential annual gross income tax revenue losses to the Property Tax Relief Fund.  Assuming the three-year phase-in period begins on January 1, 2017, the bill may reduce FY 2018 revenues by between $60 million and $90 million, FY 2019 revenues by between $75 million and $115 million, and FY 2020 revenues by between $80 million and $125 million.  Thereafter revenue losses may grow by between 3.0% and 4.0% annually.

      Most senior taxpayers do not receive enough pension and retirement income to claim an exclusion near the new maximum levels proposed under this bill.  Accordingly, most of the estimated revenue loss from this bill will occur in the first step of the three-year phase-in, followed by smaller incremental increases in subsequent years as the majority of taxpayers will have maximized their exclusion amount.

      While the OLS expects the preponderance of the fiscal impact to begin in FY 2018 when taxpayers file their final returns in April of 2018 for the 2017 Tax Year, some revenue reductions may occur in the Spring of FY 2017, to the extent that certain taxpayers adjust their quarterly estimated payments downward in April and June of 2017.  The OLS has no data on the value of senior taxpayer’s quarterly estimated payments, nor the extent to which such adjustments might occur, and is unable to project the size of this potential impact in FY 2017.