STATE OF NEW JERSEY
PRE-FILED FOR INTRODUCTION IN THE 2018 SESSION
Senator PAUL A. SARLO
District 36 (Bergen and Passaic)
Senator STEVEN V. OROHO
District 24 (Morris, Sussex and Warren)
Provides a gross income tax exclusion for attorney’s fees and costs received in connection with certain unlawful discrimination or unlawful retaliation claims or actions.
CURRENT VERSION OF TEXT
Introduced Pending Technical Review by Legislative Counsel.
An Act providing a gross income tax exclusion for attorney’s fees and costs received in connection with certain unlawful discrimination or unlawful retaliation claims or actions, supplementing Title 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. Gross income shall not include amounts received by the taxpayer for attorney’s fees and costs or amounts paid by, or on behalf of the taxpayer, for attorney’s fees and costs in connection with an informal claim or legal action, whether by suit or agreement and whether as a lump sum or periodic payment, for unlawful discrimination or unlawful retaliation. The amount of the exclusion shall be limited to the amount of the gross judgment or settlement, including an award of attorney’s fees and costs, to the taxpayer.
b. As used in this section, “unlawful discrimination or unlawful retaliation” means an act that is unlawful under a provision of federal, state, or local law, or common law claims permitted under federal, state, or local law:
(1) providing for the enforcement of civil rights, or
(2) regulating any aspect of the employment relationship, including claims for wages, severance, overtime, compensation, breach of contract, or benefits, or prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights, engaging in protected whistleblowing activity, or taking other actions permitted or protected by federal, state, local, or common law.
2. This act shall take effect immediately and apply to taxable years ending after its date of enactment.
This bill provides the victim of certain unlawful discrimination or unlawful retaliation with a gross income tax exclusion for attorney’s fees and costs received in connection with claims or actions for that discrimination or retaliation. The bill does not affect the current system for determining how New Jersey eventually taxes those fees and costs to the attorneys.
In 2004, Congress enacted the Civil Rights Tax Relief Act as part of the American Jobs Creation Act of 2004. The Civil Rights Tax Relief Act was designed to eliminate the double taxation of attorney’s fees and costs at the federal level to both the attorney who is ultimately paid the fees and the victims of discrimination or retaliation. The Act accomplished that goal by allowing the victim to take an above-the-line deduction for the recovery or payment of attorney’s fees and costs recovered in connection with any action or claim of unlawful discrimination or retaliation. See 26 U.S.C. s.62(a)(20)-(21). That law did not affect the federal taxation of the attorney’s fees to the attorneys.
New Jersey law was not amended when Congress enacted the Civil Rights Tax Relief Act in 2004. As a result, the attorney’s fees and costs that victims of unlawful discrimination or retaliation receive in connection with such claims are taxable to both the law firm that is ultimately paid the fees and the victim at the State level, although the victim never actually receives the fees.
The terms “attorney’s fees” and “costs” should be liberally construed to include all expenditures for the victim to be made whole under the law, including, but not limited to, attorney’s fees, paralegal fees, court costs, litigation expenses, and expenses for experts and consultants.