As of Jan. 1, 2018, New Jersey no longer has an estate tax. The tax was phased out over a period of years and is now nonexistent. This means that regardless of the size of the estate if someone dies their estate owes nothing to the state of New Jersey. Depending on the size of the estate, however, some taxes might still be owed to the federal government. New Jersey also has an inheritance tax to look out for. If you think you might need help determining if your estate will owe taxes or with estate planning, you may want to enlist the help of a financial advisor.
New Jersey Estate Tax
New Jersey does not levy an estate tax, making it one of 38 states with no estate tax. That doesn’t mean that residents of New Jersey won’t pay any estate taxes, however, since the federal government still requires an estate tax on estates with values over $12.92 million (in 2023) for individuals or $25.84 million for married couples.
What Is the Estate Tax?
Estate taxes are levied on the estate of a recently deceased person. It only applies to estates that reach a certain threshold, which varies by municipality. It is sometimes referred to as the “death tax.” Don’t confuse the estate tax and the inheritance tax. Inheritance taxes are taken by the government after the money or possessions have been passed to a person’s heirs.
New Jersey Inheritance Tax and Gift Tax
New Jersey has an inheritance tax. How much the inheritor owes to the state depends on their relationship to the deceased. If your relationship to the person who died is any of the following, you are exempt from the tax: spouse, civil union partner, domestic partner, child, grandchild, great-grandchild, parent, grandparent, mutually acknowledged child or step-child.
You do owe taxes if you are the deceased’s sibling or are the spouse/civil partner of the deceased’s child (i.e. you were married to the deceased’s child, who previously died). Any other relationship not listed also owes taxes. Inheritances left to schools, religious institutions or charitable organizations do not owe taxes.
The tax rate depends on how big the inheritance is and on your relationship with the deceased. New Jersey does not have a gift tax.
The federal gift tax applies to gifts of more than $16,000 in 2022 and $17,000 in 2023. Any gift to one person in one year worth more than that counts against your lifetime exemption of $12.92 million.
Federal Estate Taxes
Even though the estate won’t owe an estate tax to New Jersey, it might still owe taxes to the federal government. The federal estate tax exemption is $12.06 million in 2022 and $12.92 million in 2023/ This exemption is portable, meaning if the right legal steps are taken, a married couple can protect up to $25.84 million when both spouses die.
If an estate tax exceeds that amount, the top tax rate is 40%. A full chart of federal estate tax rates is below.
Here’s an example of how it works: Let’s say your estate is worth $19.92 million and you aren’t married. Subtracting the exemption of $12.92 million creates a taxable estate of $7 million. Consulting the chart, you are in the top bracket. Your base tax payment on the first $1 million is $345,800. You’ll also pay 40% on the remaining $6 million, which comes to $2.4 million. That, plus the base of $345,800, means the federal estate tax burden is $2,745,800.
FEDERAL ESTATE TAX RATES
| Taxable Estate* | Base Taxes Paid | Marginal Rate |
| $1 – $10,000 | $0 | 18% |
| $10,001 – $20,000 | $1,800 | 20% |
| $20,001 – $40,000 | $3,800 | 22% |
| $40,001 – $60,000 | $8,200 | 24% |
| $60,001 – $80,000 | $13,000 | 26% |
| $80,001 – $100,000 | $18,200 | 28% |
| $100,001 – $150,000 | $23,800 | 30% |
| $150,001 – $250,000 | $38,800 | 32% |
| $250,001 – $500,000 | $70,800 | 34% |
| $500,001 – $750,000 | $155,800 | 37% |
| $750,001 – $1 million | $248,300 | 39% |
| Over $1 million | $345,800 | 40% |
*The taxable estate is the total above the exemption of $12.92 million.
Overall New Jersey Tax Picture
The Garden State is moderately tax-friendly for retirees. Social Security is not taxed at the state level. Pensions and retirement account withdrawals are partially taxed. New Jersey’s income tax rate is progressive, with rates ranging from 1.40% to 10.75%. If you’re new to the state or have a new job, you can figure out what your take-home pay will be by using this New Jersey paycheck calculator. New Jersey treats capital gains as regular income and it is taxed in the same manner as salary or other income.
With a few exceptions, the sales tax for the whole state is 6.625%. There are 27 urban enterprise zones where the rate is 3.4375%. In Salem county, the rate is 3.3125% for most items. Property taxes in New Jersey are the highest in the nation, the average effective rate is 2.26%.
The Bottom Line
While the state of New Jersey no longer requires you to pay an estate tax when you die, you still could be subject to a federal tax if your estate is large enough. There could be additional taxes that you’ll pay to gift your estate to your heirs as well, such as an inheritance tax. It’s important to work with a professional who is well-versed in the taxes for the state of New Jersey to make sure you have prepared your estate properly.
Estate Planning Tips
- Taxes can be a lot to think about, especially if you’re dealing with an estate. If it’s a bit overwhelming, you may want to consider finding a financial advisor to help you figure out how to make the best decisions for you and your family. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When planning your estate, you should know how much you will have saved when you reach retirement. You can use our retirement calculator to help you figure that out.
- It’s worth considering whether you should establish a trust. A trust will allow you to control and designate which of your assets are passed on to which of your beneficiaries. There are different trusts that might be better for you, depending on your finances. For example, you could establish a testamentary trust or a living trust. This is another factor that a financial advisor can help you come to a decision on.
Photo credit: ©iStock.com/valentinrussanov, SmartAsset, ©iStock.com/Grafissimo