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

S3329

SENATE, No. 3329

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED FEBRUARY 5, 2026

Sponsored by:

Senator� SHIRLEY K. TURNER

District 15 (Hunterdon and Mercer)

SYNOPSIS

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

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act

excluding certain contributions to 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).
The method of determining the
taxable portion of a distribution from an employee trust, plan, or fund shall
be the same as the method used for determining the taxable portion of a
distribution for the purposes of the federal Internal Revenue Code of 1986 (26
U.S.C. s.1 et seq.).

���� 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 Aut1hority 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 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);

����
c.���� 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,

����
d.��� 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 elective contributions that employees of the public and
non-profit sectors 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. Employees of the public
and nonprofit sectors do not enjoy the same access to 401(k) plans as private
sector employees.

���� This bill expands the current
provision to incorporate 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.