Excludes under gross income tax certain contributions to qualified pension plans, deferred compensation plans and provides deduction for certain individual retirement savings.

A1183

ASSEMBLY, No. 1183

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Assemblyman JOHN DIMAIO

District 23 (Hunterdon, Somerset and Warren)

Assemblywoman AURA K. DUNN

District 25 (Morris and Passaic)

Co-Sponsored by:

Assemblymen McGuckin, S.Kean, Clifton, McClellan, Guardian,
Assemblywoman Fantasia and Assemblyman Bergen

SYNOPSIS

���� Excludes under gross income tax certain contributions
to qualified pension plans, deferred compensation plans and provides deduction
for certain individual retirement savings.

CURRENT VERSION OF TEXT

���� Introduced Pending Technical Review by Legislative
Counsel.

��

An Act
excluding certain contributions to qualified pension
plans, deferred compensation plans and providing a deduction for certain
individual retirement savings under the gross income tax, amending
N.J.S.54A:5-1 and P.L.1983, c.571 and supplementing chapter 3 of Title 54A of
the New Jersey Statutes.

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

����
1.��� N.J.S.54A:5-1
is amended to read as follows:

���� 54A:5-1.� New Jersey Gross
Income Defined.� New Jersey gross income shall consist of the following
categories of income:

���� a.���� Salaries, wages, tips,
fees, commissions, bonuses, and other remuneration received for services
rendered whether in cash or in property, and amounts paid or distributed, or
deemed paid or distributed, out of a medical savings account that are not
excluded from gross income pursuant to section 5 of P.L.1997, c.414
(C.54A:6-27).

���� b.��� Net profits from
business.� The net income from the operation of a business, profession or other
activity after provision for all costs and expenses incurred in the conduct
thereof, determined either on a cash or accrual basis in accordance with the
method of accounting allowed for federal income tax purposes but without
deduction of the amount of:

���� (1)�� taxes based on income;

���� (2)�� a civil, civil
administrative, or criminal penalty or fine, including a penalty or fine under
an administrative consent order, assessed and collected for a violation of a
State or federal environmental law, an administrative consent order, or an
environmental ordinance or resolution of a local governmental entity, and any
interest earned on the penalty or fine, and any economic benefits having
accrued to the violator as a result of a violation, which benefits are assessed
and recovered in a civil, civil administrative, or criminal action, or pursuant
to an administrative consent order.� The provisions of this paragraph shall not
apply to a penalty or fine assessed or collected for a violation of a State or
federal environmental law, or local environmental ordinance or resolution, if
the penalty or fine was for a violation that resulted from fire, riot,
sabotage, flood, storm event, natural cause, or other act of God beyond the
reasonable control of the violator, or caused by an act or omission of a person
who was outside the reasonable control of the violator; and

���� (3)�� treble damages paid to
the Department of Environmental Protection pursuant to subsection a. of section
7 of P.L.1976, c.141 (C.58:10-23.11f) for costs incurred by the department in
removing, or arranging for the removal of, an unauthorized discharge upon the
failure of the discharger to comply with a directive from the department to
remove, or arrange for the removal of, a discharge.

���� c.���� Net gains or income
from disposition of property.� Net gains or net income, less net losses,
derived from the sale, exchange or other disposition of property, including
real or personal, whether tangible or intangible as determined in accordance
with the method of accounting allowed for federal income tax purposes.� For the
purpose of determining gain or loss, the basis of property shall be the
adjusted basis used for federal income tax purposes, except as expressly
provided for under this act, but without a deduction for penalties, fines, or
economic benefits excepted pursuant to paragraph (2), or for treble damages
excepted pursuant to paragraph (3) of subsection b. of this section.

���� A taxpayer's net gain or loss
on the sale, exchange or other disposition of a share of an S corporation shall
be calculated by increasing the adjusted basis of the share by an amount equal
to the shareholder's net losses and deductions in respect of the share allowed
and deducted from income for federal income tax purposes, not including any
personal net operating loss deductions, to the extent that such net losses were
not offset by the taxpayer's pro rata share of S corporation income otherwise
subject to taxation pursuant to subsection p. of this section in respect of
another S corporation, subject to rules of priority and assignment determined
by the director.

���� For the tax year 1976, any
taxpayer with a tax liability under this subsection, or under the "Tax on
Capital Gains and Other Unearned Income Act," P.L.1975, c.172 (C.54:8B-1
et seq.), shall not be subject to payment of an amount greater than the amount
he would have paid if either return had covered all capital transactions during
the full tax year 1976; provided, however, that the rate which shall apply to
any capital gain shall be that in effect on the date of the transaction.� To
the extent that any loss is used to offset any gain under P.L.1975, c.172, it
shall not be used to offset any gain under the "New Jersey Gross Income
Tax Act," N.J.S.54A:1-1 et seq.

���� The term "net gains or
income" shall not include gains or income derived from obligations which
are referred to in clause (1) or (2) of N.J.S.54A:6-14 of this act or from
securities which evidence ownership in a qualified investment fund as defined
in section 2 of P.L.1987, c.310 (C.54A:6-14.1).� The term "net gains or
income" shall not include gains or income derived from the sale or
assignment of a tax credit transfer certificate pursuant to section 7 of
P.L.2011, c.149 (C.34:1B-248) and section 10 of P.L.2014, c.63 (C.34:1B-251)
from any sale or assignment of a tax credit issued pursuant to an award of tax
credits approved by the New Jersey Economic Development Authority prior to July
1, 2018, regardless of when such sale or assignment occurs.� The term "net
gains or net income" shall not include gains or income from transactions
to the extent to which nonrecognition is allowed for federal income tax
purposes.� The term "sale, exchange or other disposition" shall not
include the exchange of stock or securities in a corporation a party to a
reorganization in pursuance of a plan of reorganization, solely for stock or
securities in such corporation or in another corporation a party to the
reorganization and the transfer of property to a corporation by one or more
persons solely in exchange for stock or securities in such corporation if
immediately after the exchange such person or persons are in control of the
corporation.� For purposes of this clause, stock or securities issued for
services shall not be considered as issued in return for property.

���� For purposes of this clause,
the term "reorganization" means--

���� (i)��� A statutory merger or
consolidation;

���� (ii)�� The acquisition by one
corporation, in exchange solely for all or part of its voting stock (or in
exchange solely for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation) of stock of another corporation if,
immediately after the acquisition, the acquiring corporation has control of
such other corporation (whether or not such acquiring corporation had control
immediately before the acquisition);

���� (iii)� The acquisition by one
corporation, in exchange solely for all or part of its voting stock (or in
exchange solely for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation), of substantially all of the
properties of another corporation, but in determining whether the exchange is
solely for stock the assumption by the acquiring corporation of a liability of
the other, or the fact that property acquired is subject to a liability, shall
be disregarded;

���� (iv)� A transfer by a
corporation of all or a part of its assets to another corporation if
immediately after the transfer the transferor, or one or more of its
shareholders (including persons who were shareholders immediately before the
transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred;

���� (v)�� A recapitalization;

���� (vi)� A mere change in
identity, form, or place of organization however effected; or

���� (vii)� The acquisition by one
corporation, in exchange for stock of a corporation (referred to in this
subclause as "controlling corporation") which is in control of the
acquiring corporation, of substantially all of the properties of another corporation
which in the transaction is merged into the acquiring corporation shall not
disqualify a transaction under subclause (i) if such transaction would have
qualified under subclause (i) if the merger had been into the controlling
corporation, and no stock of the acquiring corporation is used in the
transaction;

���� (viii)� A transaction
otherwise qualifying under subclause (i) shall not be disqualified by reason of
the fact that stock of a corporation (referred to in this subclause as the
"controlling corporation") which before the merger was in control of
the merged corporation is used in the transaction, if after the transaction,
the corporation surviving the merger holds substantially all of its properties
and of the properties of the merged corporation (other than stock of the
controlling corporation distributed in the transaction); and in the
transaction, former shareholders of the surviving corporation exchanged, for an
amount of voting stock of the controlling corporation, an amount of stock in
the surviving corporation which constitutes control of such corporation.

���� For purposes of this clause,
the term "control" means the ownership of stock possessing at least
80% of the total combined voting power of all classes of stock entitled to vote
and at least 80% of the total number of shares of all other classes of stock of
the corporation.

���� For purposes of this clause,
the term "a party to a reorganization" includes a corporation
resulting from a reorganization, and both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another.� In the case of a reorganization qualifying under
subclause (i) by reason of subclause (vii) the term "a party to a
reorganization" includes the controlling corporation referred to in such
subclause (vii).

���� Notwithstanding any provisions
hereof, upon every such exchange or conversion, the taxpayer's basis for the
stock or securities received shall be the same as the taxpayer's actual or
attributed basis for the stock, securities or property surrendered in exchange
therefor.

���� d.��� Net gains or net income
derived from or in the form of rents, royalties, patents, and copyrights.

���� e.���� Interest, except
interest referred to in clause (1) or (2) of N.J.S.54A:6-14, or distributions
paid by a qualified investment fund as defined in section 2 of P.L.1987, c.310
(C.54A:6-14.1), to the extent provided in that section.

���� f.���� Dividends.�
"Dividends" means any distribution in cash or property made by a
corporation, association or business trust that is not an S corporation, (1)
out of accumulated earnings and profits, or (2) out of earnings and profits of
the year in which such dividend is paid and any distribution in cash or
property made by an S corporation, as specifically determined pursuant to
section 16 of P.L.1993, c.173 (C.54A:5-14).

���� The term "dividends"
shall not include distributions paid by a qualified investment fund as defined
in section 2 of P.L.1987, c.310 (C.54A:6-14.1), to the extent provided in that
section.

���� g.��� Gambling winnings.

���� h.��� Net gains or income
derived through estates or trusts.

���� i.���� Income in respect of a
decedent.

���� j.���� Amounts distributed or
withdrawn from an employee trust
, plan or fund
attributable to
contributions to the trust
, plan or fund
which were excluded from gross
income under the provisions of chapter 6 of Title 54A of the New Jersey
Statutes
or that were deducted from gross income under the provisions of
section 3 of P.L. , c.�� (C.������ ) (pending
before the Legislature as this bill)
, amounts rolled over from an IRA, as
defined pursuant to subsection (a) of section 408 of the federal Internal
Revenue Code of 1986, 26 U.S.C. s.408, that is not a Roth IRA, as defined
pursuant to subsection b. of section 2 of P.L.1998,c.57 (C.54A:6-28) to an IRA
that is a Roth IRA, and pensions and annuities except to the extent of
exclusions in N.J.S.54A:6-10 hereunder, notwithstanding the provisions of
N.J.S.18A:66-51, P.L.1973, c.140, s.41 (C.43:6A-41), P.L.1954, c.84, s.53
(C.43:15A-53), P.L.1944, c.255, s.17 (C.43:16A-17), P.L.1965, c.89, s.45
(C.53:5A-45), R.S.43:10-14, P.L.1943, c.160, s.22 (C.43:10-18.22), P.L.1948,
c.310, s.22 (C.43:10-18.71), P.L.1954, c.218, s.32 (C.43:13-22.34), P.L.1964,
c.275, s.11 (C.43:13-22.60), R.S.43:10-57, P.L.1938, c.330, s.13 (C.43:10-105),
R.S.43:13-44, and P.L.1943, c.189, s.5 (C.43:13-37.5).

���� k.��� Distributive share of
partnership income, excluding the gain or income derived from the sale or
assignment of a tax credit transfer certificate pursuant to section 7 of
P.L.2011, c.149 (C.34:1B-248) and section 10 of P.L.2014, c.63 (C.34:1B-251)
from any sale or assignment of a tax credit issued pursuant to an award of tax
credits approved by the New Jersey Economic Development Authority prior to July
1, 2018, regardless of when such sale or assignment occurs.

���� l.���� Amounts received as
prizes and awards, except as provided in N.J.S.54A:6-8 and N.J.S.54A:6-11
hereunder.

���� m.�� Rental value of a
residence furnished by an employer or a rental allowance paid by an employer to
provide a home.

���� n.��� Alimony and separate
maintenance payments to the extent that such payments are required to be made
under a decree of divorce or separate maintenance but not including payments
for support of minor children.

���� o.��� Income, gain or profit
derived from acts or omissions defined as crimes or offenses under the laws of
this State or any other jurisdiction.

���� p.��� Net pro rata share of S
corporation income, excluding the gain or income derived from the sale or
assignment of a tax credit transfer certificate pursuant to section 7 of
P.L.2011, c.149 (C.34:1B-248) and section 10 P.L.2014, c.63 (C.34:1B-251) from
any sale or assignment of a tax credit issued pursuant to an award of tax
credits approved by the New Jersey Economic Development Authority prior to July
1, 2018, regardless of when such sale or assignment occurs.

(cf: P.L.2018, c.131, s.8)

���� 2.��� Section 2 of P.L.1983,
c.571 (C.54A:6-21) is amended to read as follows:

���� 2.��� Contributions to certain
employee trusts
, plans and funds
.

Gross income shall not include
amounts contributed
:

����
a.
���� by an employer
on behalf of and at the election of an employee to a trust which is part of a
qualified cash or deferred arrangement which meets the requirements of
[
Section 401(k)
]

subsection
(k) of section 401
of the
[
1954
]

federal

Internal Revenue Code
of 1986 (26 U.S.C. s.401),
as
amended;

����
b.� for a qualified pension
plan which meets the requirements under the provisions of subsection (a) of
section 401 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.401);

���� c.���� for annuity contracts,
or treated as amounts contributed for annuity contracts, under the provisions
of subsection (b) of section 403 of the federal Internal Revenue Code of 1986
(26 U.S.C. s.403);

���� d.��� to an eligible deferred
compensation plan of a state or local government which meets the requirements
of section 457 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.457);
or,

���� e.���� to the federal Thrift
Savings Fund established pursuant to 5 U.S.C. s.8437 if those amounts are
excludable from the federal gross income of the employee for the taxable year.

(cf: P.L.1983, c.571, s.2)

���� 3.��� (New section)� A
taxpayer shall be allowed a deduction from gross income equal to the taxpayer's
contributions or premiums for the taxable year contributed to an individual
retirement account, or paid as premiums for the purchase of an individual
retirement annuity, which meets the requirements of section 408 of the federal
Internal Revenue Code of 1986 (26 U.S.C. s.408), and that are deductible from
federal taxable income pursuant to section 219 of the federal Internal Revenue
Code of 1986 (26 U.S.C. s.219).

���� 4.��� This
act shall take effect immediately and apply to taxable years beginning on or
after the January 1 immediately following the date of enactment.

STATEMENT

���� This
bill excludes from gross income taxation the employee and employer
contributions that public and private sector employees make to federally
qualified tax exempt pension plans under section 401(a) of the federal Internal
Revenue Code.� The bill also excludes from gross income taxation elective
contributions that employees of the public and non-profit sectors may make
toward their retirement savings, and allows a deduction for federally
qualifying IRA contributions.

���� The
New Jersey gross income tax currently allows the employees of private, for
profit, businesses to make tax-deferred contributions to the retirement savings
plans authorized under section 401(k) of the federal Internal Revenue Code.�
Contributions mandated under most qualified retirement plans are not accorded
tax deferral under the New Jersey gross income tax.� Also employees of public
and nonprofit sectors are not afforded the same access to 401(k) plans as
private sector employees that includes the gross income tax contributions tax deferral.

���� This
bill incorporates New Jersey gross income tax deferrals for private and public
sector employee contributions and for contribution designated as �employer
contributions� for federal income tax purposes under qualified retirement plans
established under section 401(a) of the federal Internal Revenue Code.� This
bill also incorporates tax deferrals for the elective deferred compensation
systems allowed to employees of governments and nonprofits.� Charitable,
educational and religious organization employees and public school employees
are authorized by federal law to contribute toward their retirement savings
under plans established under subsection (b) of section 403 of the federal
Internal Revenue Code of 1986. � State and local government and authority
employers are authorized by federal law to make contributions under plans
established under section 457 of the federal Internal Revenue Code, and federal
employees are authorized by the federal Internal Revenue Code to make
contributions to the federal Thrift Savings Plan.

���� This
bill gives the employees of federally tax-exempt charitable, educational or
religious organizations; the employees of public school systems; the employees
of state and local government and federal employees similar tax incentives for
retirement savings that are provided under the New Jersey gross income tax to
private sector employees.

���� This
bill also allows a gross income tax deduction for contributions to individual
retirement accounts, or premiums paid to individual retirement annuities, that
qualify for federal income tax deductions. IRA's are a significant retirement
savings vehicle for employees whose employers do not offer a pension plan.