Excludes certain retirement savings plan contributions, withdrawals, and rollovers from gross income tax.

S4106

SENATE, No. 4106

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED MAY 4, 2026

Sponsored by:

Senator� ANTHONY M. BUCCO

District 25 (Morris and Passaic)

SYNOPSIS

���� Excludes certain retirement savings plan
contributions, withdrawals, and rollovers from gross income tax.

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act
excluding certain retirement savings plan
contributions, withdrawals, and rollovers from gross income tax, and amending
various parts of the statutory law.

����
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 attributable to contributions
to the trust which were excluded from gross income under the provisions of
chapter 6 of Title 54A of the New Jersey Statutes, 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
]

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.��� 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
]

that

meets the requirements of
[
Section
401(k)
]

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

federal

Internal Revenue Code
(25 U.S.C. s.401)
, as amended
;

����
b.��� to a qualified
pension plan that meets the requirements of subsection (a) of section 401 of
the federal Internal Revenue Code (26 U.S.C. s.401);

����
c.���� to an annuity plan
that meets the requirements of subsection (b) of section 403 of the federal
Internal Revenue Code (26 U.S.C. s.403);

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

����
e.���� to a federal Thrift
Savings Fund established pursuant to 5 U.S.C. s.8437; or

����
f.���� to an individual
retirement account or annuity that meets the requirements of section 408 of the
federal Internal Revenue Code (26 U.S.C. s.408), including amounts rolled over
from a Traditional IRA, as defined pursuant to subsection (a) of section 408 of
the federal Internal Revenue Code of 1986, 26 U.S.C. s.408(a), 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
.

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

���� 3.��� N.J.S.54A:6-10 is
amended to read as follows:

���� 54A:6-10.� Pensions and
annuities.

���� a.���� Gross income shall not
include that part of any amount received as an annuity under an annuity,
endowment, or life insurance contract which bears the same ratio to such amount
as the investment in the contract as of the annuity starting date bears to the
expected return under the contract as of such date.� Where (1) part of the consideration
for an annuity, endowment, or life insurance contract is contributed by the
employer, and (2) during the three-year period beginning on the date on which
an amount is first received under the contract as an annuity, the aggregate
amount receivable by the employee under the terms of the contract is equal to
or greater than the consideration for the contract contributed by the employee,
then all amounts received as an annuity under the contract shall be excluded
from gross income until there has been so excluded an amount equal to the
consideration for the contract contributed by the employee.

���� b. �(1) �In addition to
[
that part of
]
any amount
[
received as an
annuity which is
]

otherwise
excludable from gross income
[
as
herein provided
]

pursuant to this section
, gross income shall not include payments:

���� for taxable years beginning
before January 1, 2000, of up to $10,000 for a married couple filing jointly,
$5,000 for a married person filing separately, or $7,500 for an individual
filing as a single taxpayer or an individual determining tax pursuant to subsection
a. of N.J.S.54A:2-1;

���� for the taxable year beginning
on or after January 1, 2000, but before January 1, 2001, of up to $12,500 for a
married couple filing jointly, $6,250 for a married person filing separately,
or $9,375 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for the taxable year beginning
on or after January 1, 2001, but before January 1, 2002, of up to $15,000 for a
married couple filing jointly, $7,500 for a married person filing separately,
or $11,250 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for the taxable year beginning
on or after January 1, 2002, but before January 1, 2003, of up to $17,500 for a
married couple filing jointly, $8,750 for a married person filing separately,
or $13,125 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for taxable years beginning on
or after January 1, 2003, but before January 1, 2017 of up to $20,000 for a
married couple filing jointly, $10,000 for a married person filing separately,
or $15,000 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for taxable years beginning on
or after January 1, 2017, but before January 1, 2018, of up to $40,000 for a
married couple filing jointly, $20,000 for a married person filing separately,
or $30,000 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for taxable years beginning on
or after January 1, 2018, but before January 1, 2019, of up to $60,000 for a
married couple filing jointly, $30,000 for a married person filing separately,
or $45,000 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for taxable years beginning on
or after January 1, 2019, but before January 1, 2020, of up to $80,000 for a
married couple filing jointly, $40,000 for a married person filing separately,
or $60,000 for an individual filing as a single taxpayer or an individual
determining tax pursuant to subsection a. of N.J.S.54A:2-1;����

���� for taxable years beginning on
or after January 1, 2020, of up to $100,000 for a married couple filing
jointly, $50,000 for a married person filing separately, or $75,000 for an
individual filing as a single taxpayer or an individual determining tax pursuant
to subsection a. of N.J.S.54A:2-1;

���� for taxable years beginning on
or after January 1, 2021, for a taxpayer with gross income in excess of
$100,000, but not more than $125,000, 50 percent of payments for a married
couple filing jointly, 25 percent of payments for a married couple filing separately,
or 37.5 percent of payments for an individual filing as a single taxpayer or
individual determining tax pursuant to subsection a. of N.J.S.54A:2-1;

���� for taxable years beginning on
or after January 1, 2021, for a taxpayer with gross income in excess of
$125,000, but not more than $150,000, 25 percent of payments for a married
couple filing jointly, 12.5 percent of payments for a married couple filing separately,
or 18.75 percent of payments for an individual filing as a single taxpayer or
individual determining tax pursuant to subsection a. of N.J.S.54A:2-1,

���� which are received as an
annuity, endowment or life insurance contract, or payments of any such amounts
which are received as pension, disability, or retirement benefits, under any
public or private plan, whether the consideration therefor is contributed by
the employee or employer or both, by any person who is 62 years of age or older
or who, by virtue of disability, is or would be eligible to receive payments
under the federal Social Security Act.

���� (2) For taxable years
beginning on or after January 1, 2005, but before January 1, 2021, the
exclusion provided by this subsection shall only be allowed if the taxpayer has
gross income for the taxable year of not more than $100,000.

���� For taxable years beginning on
or after January 1, 2021, the exclusion provided by this subsection shall only
be allowed if the taxpayer has gross income for the taxable year of not more
than $150,000.

���� c.���� Gross income shall not
include any amount received under any public or private plan by reason of a
permanent and total disability.

���� d.���
[
Gross income
shall not include distributions from an employees' trust described in section
401(a) of the Internal Revenue Code of 1986, as amended (hereinafter referred
to as "the Code"), which is exempt from tax under section 501(a) of
the Code if the distribution, except the portion representing the employees'
contributions, is rolled over in accordance with section 402(a)(5) or section
403(a)(4) of the Code.� The distribution shall be paid in one or more
installments which constitute a lump-sum distribution within the meaning of
section 402(e)(4)(A) (determined without reference to subsection (e)(4)(B)), or
be on account of a termination of a plan of which the trust is a part or, in
the case of a profit-sharing or stock bonus plan, a complete discontinuance of
contributions under such plan.
]

(
Deleted by amendment, P.L.��� , c.��� ) (pending before the Legislature as
this bill)

����
e.���� (1)� Gross income
shall not include any amount received by the taxpayer as a qualified withdrawal
from:

����
(a)�� a trust which is part
of a qualified cash or deferred arrangement that meets the requirements of
subsection (k) of section 401 of the federal Internal Revenue Code (25 U.S.C.
s.401), as amended;

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

����
(c)�� an annuity plan that
meets the requirements of subsection (b) of section 403 of the federal Internal
Revenue Code (26 U.S.C. s.403);

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

����
(e)�� a federal Thrift
Savings Fund established pursuant to 5 U.S.C. s.8437; or

����
(f)�� an individual
retirement account or annuity that meets the requirements of section 408 of the
federal Internal Revenue Code (26 U.S.C. s.408), including amounts rolled over
from a Traditional IRA, as defined pursuant to subsection (a) of section 408 of
the federal Internal Revenue Code of 1986, 26 U.S.C. s.408(a), 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.

����
(2)�� For purposes of this
subsection, a "qualified withdrawal" means a withdrawal from a
retirement trust, plan, fund, account, or annuity, as set forth in paragraph
(1) of this subsection, that is permitted under the federal Internal Revenue
Code and for which no penalties or additional taxes for nonqualifying
withdrawals are assessed pursuant to the federal Internal Revenue Code,
regulations issued thereunder, or other directives or guidance of the federal
Internal Revenue Service.

(cf: P.L.2021, c.129, s.1)

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

STATEMENT

���� This bill excludes
contributions, qualified withdrawals, and rollovers from certain retirement
savings accounts from a taxpayer�s gross income.� Specifically, the bill would
exclude any amounts that are contributed to, or received as a qualified
withdrawal from:� (1) a plan established under section 401(a) or section 401(k)
of the federal Internal Revenue Code; (2) amounts paid for annuity contracts
under section 403(b) of the federal Internal Revenue Code which are offered to
government and nonprofit employees; (3) a deferred compensation plan
established under section 457 of the federal Internal Revenue Code; (4) a
federal Thrift Savings Plan; or (5) an Individual Retirement Account (IRA)
established pursuant to section 408 of the federal Internal Revenue Code.� The
bill would also exclude from gross income any rollovers from an IRA to another
retirement savings account.

���� For purposes of the bill, a
�qualified withdrawal� is defined as a withdrawal from a retirement trust,
plan, fund, account, or annuity, as applicable under the bill, that is
permitted under the federal Internal Revenue Code and for which no penalties or
additional taxes for nonqualifying withdrawals are assessed pursuant to the
Internal Revenue Code, regulations issued thereunder, or other directives or
guidance of the federal Internal Revenue Service.

���� By excluding additional
categories of retirement savings from gross income, it is the sponsor�s intent
to remove a deterrent to retirement savings and provide greater financial
security for New Jersey taxpayers as they prepare for, and enter, their retirement
years.