The New Jersey millionaires tax is a 10.75% marginal income tax rate that applies to every dollar of taxable income above $1 million. The rate itself isn’t new, but the $1 million threshold is: legislation signed on September 29, 2020 lowered the trigger from $5 million, which dramatically expanded the number of filers who pay it.1NJ.gov. 2020 Income Tax Rate and Withholding Instruction It is one of the highest state income tax rates in the country, and it reaches residents on their worldwide income, nonresidents on New Jersey-sourced income, and certain trusts and estates.
How the 10.75% Rate Actually Hits Your Return
New Jersey uses graduated brackets, so the 10.75% rate only applies to the slice of income above $1 million. Everything below that is taxed in layers at lower rates. For married couples filing jointly and heads of household, the brackets for tax years beginning on or after January 1, 2020 are:2Justia. New Jersey Revised Statutes Title 54A Section 54A:2-1 – Imposition of Tax
- Up to $20,000: 1.4%
- $20,001 to $50,000: 1.75%
- $50,001 to $70,000: 2.45%
- $70,001 to $80,000: 3.5%
- $80,001 to $150,000: 5.525%
- $150,001 to $500,000: 6.37%
- $500,001 to $1,000,000: 8.97%
- Over $1,000,000: 10.75%
Single filers and married individuals filing separately use the same rates with different breakpoints in the lower and middle ranges, but the top two brackets match: 8.97% from $500,000 to $1 million, and 10.75% above $1 million.2Justia. New Jersey Revised Statutes Title 54A Section 54A:2-1 – Imposition of Tax
Your effective rate is always a blend. A married couple with $1.5 million in taxable income pays 10.75% only on the $500,000 above the threshold. The first $1 million runs through the lower brackets, producing a total tax of roughly $126,400, or an effective rate of about 8.4%.
What Income Counts Toward the $1 Million Threshold
Whether you cross $1 million is measured by New Jersey Gross Income, which is calculated differently from federal adjusted gross income. New Jersey uses a build-up method: start at zero and add specific categories such as wages, interest, dividends, net business profits, capital gains, rental income, and retirement distributions. Several deductions available on your federal return simply don’t exist here.
Capital gains and pass-through business income are the two categories that most often push a filer over $1 million. Income from S corporations and partnerships flows through to the owner’s individual return and counts toward the threshold. A business owner who normally earns $800,000 in wages can land in millionaires-tax territory in a year they sell appreciated stock or real estate.
A quirk worth knowing: interest from New Jersey state and municipal bonds is excluded from New Jersey Gross Income,3Justia. New Jersey Revised Statutes Title 52 Section 52:27D-488 – Bonds Exempt From Taxation but interest from bonds issued by other states is fully taxable. That’s the opposite of the federal rule, where all municipal bond interest is excluded. Portfolio decisions that make sense federally can be the wrong call for a New Jersey resident.
Trusts and Estates Hit the Top Rate at the Same Threshold
The 10.75% rate applies to estates and trusts on taxable income above $1 million, using the same graduated brackets as single filers below that point. A resident estate or trust must file once gross income reaches $10,000, and a nonresident estate or trust must file when it receives more than $10,000 from all sources.4NJ.gov. 2025 Form NJ-1041 Instructions
This gets expensive quickly for irrevocable trusts that retain New Jersey residency and accumulate income rather than distributing it. A trust holding appreciated assets can cross $1 million in a single sale year and owe tax at the top rate on its own, with no individual beneficiary to absorb it.
Who Counts as a Resident
Residents owe New Jersey tax on all worldwide income. Nonresidents owe only on New Jersey-sourced income. The state can treat you as a resident two ways: through domicile or under a statutory 183-day test.
Domicile is your permanent home. The Division of Taxation weighs where you vote, where your driver’s license and vehicle registrations are issued, where your family lives, whether your federal return lists a New Jersey address, where you keep bank accounts, and whether you’ve claimed any New Jersey property tax relief.5NJ.gov. Part-Year Residents and Nonresidents Understanding Income Tax No single factor controls, and stated intent won’t override contrary evidence.
Even if your domicile is elsewhere, you’re a statutory resident if you maintain a permanent home in New Jersey and spend more than 183 days there during the year.5NJ.gov. Part-Year Residents and Nonresidents Understanding Income Tax A permanent home doesn’t have to be owned; a year-round rental qualifies. The reverse rule also exists: if you’re domiciled in New Jersey but didn’t maintain a permanent home here, kept one outside the state, and spent 30 days or fewer in New Jersey, you can be treated as a nonresident.
High earners who move to escape the millionaires tax need to sever ties thoroughly. Changing your address with the Division is paperwork. The audit exposure comes from the domicile factors above. Keeping a New Jersey home, retaining memberships, or leaving voter registration in place can all be used as evidence that you never actually left.
How Nonresidents Get Caught
A nonresident only owes New Jersey tax on income sourced to the state, but the $1 million threshold is measured against total income as if the taxpayer were a full-year resident. Someone with $1.2 million in total income and $300,000 sourced to New Jersey applies the 10.75% rate to the New Jersey-sourced portion, because total income clears $1 million.
The Convenience of the Employer Rule
New Jersey adopted a convenience of the employer rule in 2023.6NJ Division of Taxation. Convenience of the Employer Sourcing Rule Enacted for Gross Income Tax If you work remotely from your home state for a New Jersey-based employer out of personal convenience rather than genuine business necessity, your wages are sourced to New Jersey as if you performed the work in-state.
The rule currently reaches only residents of states that impose a similar test: Delaware, Nebraska, and New York. That list can shift as other states adopt or repeal their own rules.7NJ Division of Taxation. Convenience of the Employer Sourcing Rule FAQ Necessity is read narrowly: it means the work genuinely cannot be done from the employer’s New Jersey location, not that the employer tolerates remote work.
Pass-Through Business Income
Nonresident owners of partnerships and S corporations source business income to New Jersey using a single receipts factor. Service sales are allocated by where the customer receives the benefit, a method called market sourcing. If your pass-through entity has New Jersey customers, some of its income is New Jersey-sourced regardless of where you or the business sit. Nonresidents who owe tax in both states can usually claim a credit against their home-state liability for taxes paid to New Jersey.
Real Estate Sales by Nonresidents
Nonresident sellers of New Jersey real estate must make an estimated tax payment at closing equal to the greater of 10.75% of the gain or 2% of the total sale price.8NJ Division of Taxation. FAQs on GIT Forms Required for Sale or Transfer of Real Property in New Jersey This is often called the exit tax, though it’s technically a prepayment of income tax, not a separate levy. The seller claims credit for it on their return and recovers any overpayment as a refund.
Resident sellers avoid the closing withholding by certifying residency on form GIT/REP-3 and settling up when they file.9NJ.gov. GIT/REP-3 Seller’s Residency Certification/Exemption Instructions A large gain can still push a resident seller over $1 million in the sale year. Someone who normally earns $700,000 but books a $500,000 gain becomes a millionaires-tax filer that year and owes 10.75% on the income above the threshold.
BAIT: The Pass-Through Workaround
The Business Alternative Income Tax, known as BAIT, is an optional entity-level tax for pass-through businesses. The entity elects to pay New Jersey tax on its income, and the owners receive a refundable credit on their individual returns for their share of what the entity paid. The appeal isn’t just mechanics. BAIT is the main workaround for the federal SALT deduction cap.
BAIT uses its own graduated rate schedule:10NJ.gov. Pass-Through Business Alternative Income Tax Act
- First $250,000: 5.675%
- $250,001 to $1,000,000: 6.52%
- $1,000,001 to $5,000,000: 9.12%
- Over $5,000,000: 10.9%
The entity must elect into BAIT each year by the original due date of its PTE-100 return, which is March 15 for calendar-year filers. The election can’t be made retroactively. For tax years beginning in 2022 and later, BAIT for partnerships is calculated on all of a New Jersey resident owner’s share of income, not just the New Jersey-sourced slice.11NJ.gov. PTE/BAIT FAQ
When an individual pays New Jersey tax directly, their federal SALT deduction is capped at $40,000 for most filers starting in 2026. When the entity pays through BAIT, the payment is a business expense at the entity level, which reduces federal taxable income without hitting the SALT cap. For a pass-through owner with $2 million in business income, that difference can save tens of thousands of federal dollars. The owner then claims the refundable BAIT credit on the New Jersey return.11NJ.gov. PTE/BAIT FAQ
In the first year of the election, a calendar-year filer can pay the entire BAIT on March 15, and the members receive credit as if the payments had been spread across the year for estimated tax safe harbor purposes. After the first year, the entity owes quarterly BAIT estimates.
Estimated Payments and the 110% Safe Harbor
Anyone expecting to owe more than $400 at filing must make quarterly estimated payments using Form NJ-1040-ES.12NJ.gov. 2026 Form NJ-1040-ES Instructions The due dates are April 15, June 15, September 15, and January 15 of the following year, though you can prepay the full amount by April 15.
The ordinary safe harbor is the lesser of 80% of the current year’s tax or 100% of the prior year’s tax. High earners face a stricter version: if prior-year gross income exceeded $150,000, or $75,000 if married filing separately, you must have paid at least 110% of the prior year’s tax to qualify.13NJ.gov. Notice Concerning Estimated Tax for Taxpayers Earning Over $150,000 Essentially every taxpayer subject to the millionaires tax falls into this elevated group. Missing the safe harbor triggers underpayment interest calculated quarter by quarter on Form NJ-2210.14NJ.gov. 2025 NJ-2210 Underpayment of Estimated Tax by Individuals, Estates, or Trusts
If your income swings from year to year, which is common with large capital gains or lumpy business income, the annualized income installment method lets you match quarterly payments to when the income actually arrives. In a year when most of the income lands in the third or fourth quarter, this can reduce or eliminate underpayment interest.
Extensions and Late-Filing Penalties
New Jersey grants an automatic filing extension if you’ve paid at least 80% of your total liability by the original due date through withholding, estimated payments, or a payment with Form NJ-630.15Legal Information Institute. New Jersey Administrative Code 18:35-6.1 – Extension of Time to File New Jersey Gross Income Tax Return Fall short of 80% and the extension is denied retroactively to the original due date, with late-filing penalties accruing from then. An extension buys time to file, not time to pay.
Late-filing penalties are heavy. A late return draws a $100 flat penalty for each month or partial month, plus 5% per month of the unpaid tax, capped at 25%. If no return comes in within 30 days of the first delinquency notice, the 5% monthly penalty applies to the entire liability, again capped at 25%.16Justia. New Jersey Revised Statutes Title 54 Section 54:49-4 – Late Filing Penalty On a millionaires-tax liability, even a short delay adds up. A taxpayer who owes $50,000 and files two months late is looking at $2,500 in the percentage penalty plus the $200 flat charge.
An additional 5% penalty applies to any underpayment shown on the return unless the taxpayer can show reasonable cause. Combined with quarterly underpayment interest, the cost of getting the millionaires tax wrong can easily exceed what a competent preparer would charge to get it right.