The New Jersey Division of Taxation has released an updated employer withholding guide containing revised percentage method withholding tables that reflect the addition of a 15.6% withholding rate on annual wages in excess of $5 million. Employers are instructed to begin using the revised withholding tables with wages paid on or after September 1, 2018.

It is not necessary to retroactively apply the increased rate to previously paid 2018 wages because the withholding tables have already taken prior wages payments into account by increasing the income tax withholding rate as directed under the tax law. (Publication NJ-WT, New Jersey gross income tax withholding instructions, revised July 2018.)

As we previously reported, recently enacted FY 2019 budget legislation (P.L. 2018, c.45) increases individual income taxes on high wage earners by instituting a higher income tax rate on income over $5 million. Effective January 1, 2018, annual income of more than $5 million is taxed at 10.75%, regardless of the taxpayer's filing status; however, the law also specifies that the 2018 income tax withholding rate is higher, at 15.6%. (EY Payroll NewsFlash Vol. 19, #115, 7-9-2018.)

Highest income tax rate increased for latter part of 2018 to account for retroactive effective date

Beginning as soon as possible, but no later than September 1, 2018, employers must withhold income tax at the rate of 15.6% from salaries, wages and other remuneration paid for services rendered in excess of $5 million during the taxable year. This higher withholding rate allows taxpayers affected by the rate increase to "catch up" on their withholdings for the year since the new tax rate is retroactive to January 1, 2018.

The Division announced that it will not impose interest or penalties for insufficient payment of estimated tax and/or withholdings that may otherwise be due before September 1, 2018, if the insufficiency is a result of the change in the tax rate.

Form NJ-W4 also revised

The Division also released an updated Form NJ-W4, Employee's Withholding Allowance Certificate, reflecting the updated percentage method withholding tables.

Supplemental rate of withholding????

There is no supplemental rate of withholding for New Jersey income tax.

If the supplemental wages are paid at the same time as regular wages compute New Jersey income tax by adding together the employee's regular wages and supplemental wages and withhold at the appropriate rate based on the combined payment.

If the supplemental wages are paid at a different time compute New Jersey income tax withholding by using the employee's NJ-W4, disregarding exemption allowances claimed.

See page 9 of the revised Publication NJ-WT.

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EY Payroll News Flash