N.J. Admin. Code § 18:35-4.3

Current through Register Vol. 56, No. 11, June 3, 2024

Section 18:35-4.3 - Earned income tax credit

(a) The following terms, as used in this section, shall have the following meanings:

"Gross income" means gross income required to be reported under the New Jersey Gross Income Tax Act, 54A:1-1 et seq., other than income excludable from the gross income tax return, but before reduction by any applicable exemptions, deductions and credits received during the taxable year by the individual or married/civil union individuals filing a joint return; and, in the case of a part-year resident, gross income means gross income a part-year resident would have reported if the part-year resident had been a resident of New Jersey for the entire taxable year.

"Federal earned income tax credit" means the credit against Federal income tax provided under I.R.C. § 32.

"New Jersey earned income tax credit" means the credit against gross income tax provided under 54A:4-6 to 54A:4-10.

"Qualifying child" means qualifying child as meant under section 32 of the I.R.C. § 32.

"Resident" means resident as defined under the New Jersey Gross Income Tax Act, 54A:1-1 et seq.

(b) A resident individual claimant who is eligible for a credit under I.R.C. § 32 shall be allowed a credit for the taxable year equal to a percentage, as provided in (e) below, of the Federal earned income tax credit allowed to and claimed by the individual or by the married individuals filing a joint return under I.R.C. § 32 for the same taxable year for which a credit is claimed pursuant to this section, subject to the restrictions of this subsection and subsections (g) through (m) below.

(c) A civil union couple shall determine their State earned income tax credit in the same manner as a married couple.

(d) Married resident individuals who file a joint return for Federal and gross income tax purposes are eligible for a New Jersey earned income tax credit. The New Jersey credit shall be calculated by multiplying the applicable percentage found in (e) below times the Federal earned income tax credit claimed by and allowed to the couple under I.R.C. § 32. Civil union partners filing jointly are also eligible for a New Jersey earned income tax credit. The New Jersey credit shall be calculated by multiplying the applicable percentage found in (f) below times the Federal earned income tax credit claimed by and allowed to the civil union couple as if they were married under I.R.C. § 32. Both civil union and married couple resident claimants must also satisfy the requirements found in (g) below.

(e) The New Jersey earned income tax credit is the following percentage of the Federal earned income tax credit for married couples filing jointly and individuals:

1. For the taxable year beginning on or after January 1, 2000 (but before January 1, 2001), 10 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

2. For the taxable year beginning on or after January 1, 2001 (but before January 1, 2002), 15 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

3. For the taxable year beginning on or after January 1, 2002 (but before January 1, 2003), 17.5 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

4. For taxable years beginning on or after January 1, 2003, but before January 1, 2008, 20 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

5. For taxable years beginning on or after January 1, 2008, but before January 1, 2009, 22.5 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

6. For taxable years beginning on or after January 1, 2009, but before January 1, 2010, 25 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

7. For taxable years beginning on or after January 1, 2010, but before January 1, 2015, 20 percent of the Federal earned income tax credit allowed and claimed for the same taxable year; and

8. For taxable years beginning on or after January 1, 2015, 30 percent of the Federal earned income tax credit allowed and claimed for the same taxable year.

(f) A civil union couple who files jointly may complete a pro forma Federal return to be used as the basis for the determination of the State earned income tax credit eligibility and amount. A true copy of any unfiled pro forma Federal income tax forms shall be retained by the couple and shall be filed as may be required with the Director of the Division of Taxation. Alternatively, the civil union couple may determine what the Federal earned income tax credit would have been by following the step-by-step procedures and directions set forth on the IRS website. The resulting Federal earned income tax credit calculated from the IRS website times the applicable percentage as listed below should be transposed onto the State return line for New Jersey earned income tax credit. A civil union couple that filed jointly that used the latter method shall retain a printout of all the completed pages from the IRS website used to arrive at the final Federal earned income tax credit amount. The New Jersey earned income tax credit for an eligible civil union couple filing jointly is:

1. For tax year 2007, 20 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

2. For taxable years beginning on or after January 1, 2008, but before January 1, 2009, 22.5 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

3. For taxable years beginning on or after January 1, 2009, but before January 1, 2010, 25 percent of the Federal earned income tax credit allowed and claimed for the same taxable year;

4. For taxable years beginning on or after January 1, 2010, but before January 1, 2015, 20 percent of the Federal earned income tax credit allowed and claimed for the same taxable year; and

5. For taxable years beginning on or after January 1, 2015, 30 percent of the Federal earned income tax credit allowed and claimed for the same taxable year.

(g) In addition to the requirements in (d), (e), and (f) above, to qualify for the New Jersey earned income tax credit:

1. The individual or individuals claiming the New Jersey earned income tax credit must claim and be allowed a Federal earned income tax credit, for the same taxable year;

2. The individual or individuals shall file a New Jersey gross income tax return, complete the schedule for the earned income tax credit and provide such information, documentation, and copies of Federal income tax forms as required by the Director of the Division of Taxation; and

3. If the individual claiming the New Jersey earned income tax credit is married, except for an individual whose tax filing status is head of household or surviving spouse for Federal and gross income tax purposes, the individual and the individual's spouse shall file a joint return to claim the New Jersey earned income tax credit.

(h) The New Jersey earned income tax credit shall be deemed to be a credit towards or payment of gross income tax on the 15th day of the fourth month following the close of the taxable year for which a credit is claimed. Any claim for the credit must be filed by the date established under 54A:9-8 (generally, three years from the filing of the return or two years from the date of payment of the tax, whichever is later).

(i) If a part-year resident of New Jersey claims, and is qualified for, a New Jersey earned income tax credit, the part-year resident's credit amount shall be prorated based on that proportion which the total number of months of the claimant's residency within the taxable year bears to 12 in that year.

(j) If a claimant for the New Jersey earned income tax credit asks the Federal Internal Revenue Service (IRS) to calculate the Federal earned income tax credit, the claim for the New Jersey earned income tax credit shall be incomplete until the Division of Taxation receives information from the IRS concerning the amount, if any, of the Federal earned income tax credit.

(k) The New Jersey earned income tax credit of an individual, or of married individuals/civil union partners filing jointly, shall be reduced by the amount of any New Jersey State tax deficiency owed by the individual or individuals and by the amount of any indebtedness authorized for setoff under 54A:9-8.1 or under any other pertinent State or Federal law. (For set-off policies and procedures, see 18:2-5.4 and 18:35-10.) After all such reductions, any remaining New Jersey earned income tax credit amount shall be refunded to the individual or individuals as an overpayment of gross income tax, either separately or in combination with any other overpayment of gross income tax.

(l) If an individual or married/civil union couple claimed a New Jersey earned income tax credit for a taxable year for which the individual or couple's Federal earned income tax credit was changed or disallowed by the IRS or other competent authority, the individual or couple shall notify the Division of Taxation, as required by 54A:8-7, within 90 days of the final determination.

(m) If an individual or married/civil union couple receives a New Jersey earned income tax credit amount for which the individual or couple is not qualified, the Division of Taxation shall recover the amount from the individual or couple in the same manner as the Division recovers erroneous refunds of gross income tax under the provisions of the Gross Income Tax Act, 54A:1-1 et seq. Also, the individual or couple will be subject to such other sanctions and penalties as may apply in the circumstances.

(n) The provisions of this section are illustrated by the following examples:

Example 1: Terry has New Jersey gross income of $ 29,500 for the taxable year, which is wage income. She has a qualifying child and she qualifies for and claims, on her Federal income tax return, a Federal earned income tax credit that is based on having a qualifying child. She is eligible for a New Jersey earned income tax credit.

Example 2: Roger and Tom are a civil union couple. They have a qualifying child. Roger has gross wage income for the taxable year of $ 13,000. Tom has New Jersey wage income of $ 20,500. Before February 19, 2007, they could not file jointly for the State earned income tax credit. They would have had to file separately and only Roger would have been entitled to the State credit because his income falls under the $ 20,000 limit before it was deleted by P.L. 2007, c. 109, effective June 28, 2007. However, under the Civil Union Act and P.L. 2007, c. 109, they can file their State return jointly with one qualifying child and are eligible for the credit because their joint income does not exceed the current joint Federal income limit for a married couple with one qualifying child. They would calculate the amount of the State credit by completing a pro forma Federal return.

N.J. Admin. Code § 18:35-4.3

Amended by 48 N.J.R. 295(a), effective 2/16/2016