Excludes deferred compensation of certain public school and federal tax-exempt organization employees from current taxation under gross income tax.

S3551

SENATE, No. 3551

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED FEBRUARY 19, 2026

Sponsored by:

Senator� ANTHONY M. BUCCO

District 25 (Morris and Passaic)

SYNOPSIS

���� Excludes deferred compensation of certain public
school and federal tax-exempt organization employees from current taxation
under gross income tax.

�

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act

excluding deferred compensation of certain
public school and federal tax-exempt organization employees from current
taxation under the gross income tax and amending P.L.1983, c.571.

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

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

���� 2.��� Contributions to certain
employee trusts.

���� Gross income shall not include
amounts contributed by an employer on behalf of and at the election of an
employee
:

����
a.
���� 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
.

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

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

STATEMENT

���� This bill excludes from gross
income taxation the payments that employees of federally tax-exempt charitable
organizations, like hospitals, churches, social welfare organizations and
educational institutions, and employees of public school systems may make
toward retirement savings, as authorized under subsection (b) of section 403 of
the federal Internal Revenue Code of 1986.

���� The federal Internal Revenue
Code allows employees of these tax exempt organizations to make �salary
reduction agreements� with their employers, plans under which the employees may
individually choose to receive less current salary (subject to limits) and
instead purchase annuity contracts or invest in mutual funds for their
retirement.� These retirement savings are not subject to federal taxation until
amounts are later distributed.

���� The New Jersey gross income
tax currently allows the employees of private, for-profit, businesses to make
such tax-deferred contributions to the retirement savings plans authorized
under section 401(k) of the federal Internal Revenue Code but does not allow
tax-deferred contributions to the retirement savings plans authorized under
section 403(b) of the Internal Revenue Code.� This bill gives the employees of
federally tax-exempt charitable organizations and employees of public school
systems the same tax incentives for retirement savings that are provided to the
employees of for-profit businesses.