Estate, Income & Inheritance Tax Attorney
in Union City, New Jersey

Estate planning is not just for those who live behind gates and drive luxury automobiles, but it encompasses literally every working adult in planning for the future and preparing for life’s uncertainties. If anything, the COVID-19 pandemic has taught us that there are no guarantees in life. Everything in your life can be fine one day, and the next day, the unexpected rears its ugly head.

There is no way to prevent challenges and setbacks, but there is a way to anticipate and prepare for them, and that’s what estate planning is all about. Estate planning not only allows you to provide for your loved ones when you’re gone but also to have legal protections in place should you become incapacitated and unable to manage your own affairs.

If you’re just embarking on estate planning, or you already have a basic plan in place, you may wonder about the role that the state and federal governments will play in the assets you leave behind to your beneficiaries. Will the government tax those assets and decrease the distribution to your heirs?

In this document, we will touch upon the issues of New Jersey inheritance taxes, estate taxes, and even income tax. For all your questions and concerns about estate planning and tax obligations in the Garden State, contact us at the Hudson Law Firm. We have comprehensive experience in estate planning and can help you craft a plan for the future to give you and your loved ones peace of mind.

At the Hudson Law Firm, we proudly serve clients throughout Union City, New Jersey, and the surrounding areas of Jersey City, Bayonne, Hoboken, and North Bergen.

Inheritance Taxes

Inheritance taxes refer to levies that the state and/or federal government may place on assets that you leave to your beneficiaries. Unless one’s estate tops $12,600,000 in value, the federal government makes no inheritance or estate tax claim on assets left to beneficiaries.

New Jersey has had an inheritance tax since 1892 and it is based upon the transfer of the decedent’s assets to the beneficiaries. Current state law breaks down beneficiaries into classes. Some are subject to taxation, while others are not.

Class A beneficiaries are the decedent’s spouse and lineal family members. Class B is no longer used. Class C are close family members, chiefly siblings. Class E beneficiaries are charities and government entities. Class D is a grab bag for everyone else.

There is no tax on Classes A and E. Class C beneficiaries face a rate beginning at 11% and rising to 16%. The first $25,000 is exempted, and the next $1,075,000 above that is taxed at 11%. The next $300,000 is taxed at 13%, and the $300,000 after that at 14%. When the inheritance reaches $1,700,000, the tax is 16%.

For Class D, there is no exemption. The first $700,000 is taxed at 15%, after that at 16%.

Estate Taxes

New Jersey instituted an estate tax in 1934, but it was phased out, so that after January 1, 2018, the state no longer imposes an estate tax. In its heyday, the estate tax was imposed only if it totaled more than the inheritance tax due on the estate.

As for the federal government, again there are no taxes due unless the estate exceeds $12,600,000 in value, though the figure is set to revert to $5,000,000 by 2025 at the latest.

New Jersey Income Tax

New Jersey’s income tax is levied on everyone — resident or nonresident — who earns an income in the state. It tops out at 10.75%, one of the highest rates in the nation, but it is a graduated tax and the top rate kicks in only if your income reaches $5,000,001.

Single filers generally pay more than married couples filing jointly. For the first $20,000 in income, both groups pay the same rate — 1.4%. After that, the groups differentiate. For instance, a single filer earning $40,000 will pay 3.5% in income taxes, while a married couple won’t pay that rate until they earn at least $70,000.

The groups coincide again when their income — single or joint — reaches $500,000, bringing the rate for both to 8.97%. Above $5,000,000, they both hit the top level of 10.75%.