Over the past year, you may have noticed our state has been at a standstill with road construction. This was due to a lack of funding over a standoff between Governor Chris Christie and democratic leaders in congress. In late September, a deal was struck that will replenish the state’s Transportation Trust Fund, bringing road and rail projects back underway by increasing New Jersey’s gas tax 23 cents per gallon.
The compromise was not all about tax hikes though. The offset to the gas tax hike is the gradual phasing out of the estate tax, a tax ease on retirement income, an increase in the Earned Income Tax Credit for the working poor, and a tax deduction for veterans. The total tab of the tax cuts, according to the governor’s office, would be $1.4 billion once fully implemented in 2021.
The estate tax has been a source of grief for residents of the Garden State and the plan is to phase it out over the course of the next year and a quarter. Beginning on January 1, 2017 the threshold will rise from $675,000 to $2 million and eliminate it altogether after Jan. 1, 2018.
What does this mean for those living in NJ? There are a few things you should consider; transportation expenses, retirement income impact, and estate planning. If your fuel expense is a significant part of your budget, you should expect an increase to this expense by about 10-15%. If you are retired or near retirement, some of you will get a little help on your tax bill. The income threshold for taxing retirement income will increase from $15,000 to $50,000 for individuals and from $20,000 to $100,000 for couples. In regards to estate planning, some families may need to review their documents. It would be advisable to review the following:
1. Wills and revocable trusts
2. Life Insurance Trusts
3. Durable Power of Attorney (gift provisions might warrant reconsideration)
4. Title to Assets
As always, we will conduct a plan review with each of our clients and make adjustments, as necessary, based on changes in the tax code and what it may do to your financial picture as a whole. It is important to note that these changes will impact every family differently and we will be discussing it with each of our clients on an individual basis.