S4065

An Act concerning the gross income tax credit for child and dependent care expenses, amending P.L.2018, c.45.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 5 of P.L.2018, c.45 (C.54A:4-17) is amended to read as follows:

5. a. A resident taxpayer with New Jersey taxable income of [$60,000] $150,000 or less who is allowed a credit for expenses for household and dependent care services for federal income tax purposes pursuant to section 21 of the Internal Revenue Code (26 U.S.C. s.21) shall be allowed a credit against the tax otherwise due pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. The credit shall be in an amount equal to a percentage of the credit allowed the taxpayer for federal income tax purposes for the taxable year, according to the following schedule:

NJ taxable income is: Amount of NJ credit is:

[Not over $20,000 50% of federal credit

over $20,000 but not over $30,000 40% of federal credit

over $30,000 but not over $40,000 30% of federal credit

over $40,000 but not over $50,000 20% of federal credit

over $50,000 but not over $60,000 10% of federal credit.]

Not over $30,000 50% of federal credit

over $30,000 but not over $60,000 40% of federal credit

over $60,000 but not over $90,000 30% of federal credit

over $90,000 but not over $120,000 20% of federal credit

over $120,000 but not over $150,000 10% of federal credit.

[The credit allowed by this section for a taxable year shall not exceed $500 for employment-related expenses paid by the taxpayer for one qualifying individual and $1,000 for employment-related expenses paid by the taxpayer for two or more qualifying individuals.] The [$60,000] $150,000 income limit set forth in this subsection shall apply to taxpayers of any filing status.

b. [A credit allowed pursuant to this section shall not reduce the tax liability otherwise due pursuant to N.J.S.54A:1-1 et seq. for a taxable year to an amount less than zero.] If the amount of the credit allowed pursuant to this section exceeds the amount of gross income tax otherwise due pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., the amount of excess shall be treated as a refundable overpayment. The Director of the Division of Taxation shall determine the order of priority of the

application of the credit allowed pursuant to this section and any other credits allowed by law.

c. Married couples shall file a joint return in order to claim the credit provided by this section. A taxpayer eligible to receive a credit pursuant to paragraph (3) or (4) of subsection (e) of section 21 of the federal Internal Revenue Code (26 U.S.C. s.21) shall be eligible for the credit provided by this section, provided the taxpayer satisfies the income limit set forth in subsection a. of this section.

d. In the case of a part-year resident claimant, the amount of the credit allowed pursuant to this section shall be pro-rated, based upon that proportion which the total number of months of the claimant's residency in the taxable year bears to 12 in that period. For this purpose, 15 days or more shall constitute a month.

(cf: P.L.2018, c.45, s.5)

2. This act shall take effect immediately and shall apply retroactively to taxable years beginning on and after January 1, 2021.

STATEMENT

This bill revises the State’s child and dependent care tax credit, which is based on the federal credit and is for taxpayers who incur expenses for household services and the care of a child or dependent to enable the taxpayer to be employed.

The bill revises the credit so that it will be refundable. This means that a taxpayer could receive a cash refund if the credit amount is in excess of their gross income tax liability. Under current law, the credit is nonrefundable, and therefore, if the credit is in excess of the taxpayer’s gross income tax liability then the taxpayer may not be able to claim the full tax credit amount.

The bill also revises the income requirements for the credit so that taxpayers who have New Jersey taxable income of $150,000 or less for the tax year can claim the credit compared to $60,000 or less under current law. In addition, the bill removes the current caps of $500 for employment-related expenses paid by the taxpayer for one child or dependent and $1,000 for employment-related expenses paid by the taxpayer for two or more children or dependents.

Finally, the bill revises the tax credit’s taxable income eligibility requirements as follows: not over $30,000 to receive a New Jersey tax credit equal to 50 percent of the federal credit; over $30,000 but not over $60,000 to receive 40 percent of the federal credit; over $60,000 but not over $90,000 to receive 30 percent of the federal credit; over $90,000 but not over $120,000 to receive 20 percent of the federal credit; and over $120,000 but not over $150,000 to receive 10 percent of the federal credit.