Overview of New Jersey Inheritance Tax Rates and Laws
Learn How the New Jersey Inheritance Tax Affects Beneficiaries
The New Jersey inheritance tax affects the recipients of bequests -- yes, the state will probably take a share of that windfall your favorite aunt left to you. New Jersey is one of a few states that collect both an inheritance tax and an estate tax. The state taxes estates on their overall value before bequests and gifts are made, then it also taxes some beneficiaries on the value of their specific bequests.
Who Is Exempt From the New Jersey Inheritance Tax?
Not every gift to every beneficiary is subject to New Jersey's inheritance tax. Most charitable organizations are exempt. Bequests valued at less than $500 are not taxed, nor are life insurance proceeds -- the gift must typically be conveyed via will or trust.
This means posthumous payments made from the New Jersey Public Employees Retirement System, the New Jersey Teachers' Pension and Annuity Fund, and the New Jersey Police and Firemen's Retirement System are exempt, too. So are annuities paid to beneficiaries by the federal government under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Federal Civil Service Retirement benefits are also safe.
Immediate family members can inherit without paying the tax. In New Jersey, these include spouses, parents, grandparents, and descendants -- children, grandchildren, and great-grandchildren of the deceased. New Jersey law also includes civil union partners and domestic partners in this category, called Class A beneficiaries.
Who Is Not Exempt From the New Jersey Inheritance Tax?
Other classes of beneficiaries must pay the state's inheritance tax but at a graduated tax rate.
Class C beneficiaries include siblings, the spouse, widow or widower of a child of the decedent, and the surviving civil union partner of a child of the decedent. These individuals can receive up to $25,000 without paying an inheritance tax. Bequests exceeding $25,000 are taxed at 11 to 16 percent, depending on the gift's value. Only inheritances valued at more than $1.7 million are subject to the highest rate of 16 percent as of 2016.
All other beneficiaries fall into Class D. They pay 15 percent on the first $700,000 they receive, and 16 percent on anything above that amount as of 2016.
Yes, Class B is missing. The state legislature has eliminated this category.
When Is the New Jersey Inheritance Tax Return and Any Required Payment Due?
The New Jersey inheritance tax return, Form IT-R for residents or Form IT-NR for nonresidents, must be filed with the state and the tax paid within eight months after the decedent's date of death. The state may grant a filing extension for the return of up to an additional four months, but the tax itself must be paid within eight months. An estate's executor can file one return for all beneficiaries, typically collecting the tax out of their inheritances.
How Is a New Jersey Inheritance Tax Lien Released?
The state automatically places liens against a decedent's property until inheritance taxes are paid, or it's established that the recipient of the property is exempt. Although Class A beneficiaries are not required to file a New Jersey inheritance tax return, they must file Form L-8 to secure the release of a New Jersey decedent's bank accounts, stocks, bonds and brokerage accounts. If the decedent held title to any New Jersey real estate, Form L-9, or Form L-9NR for a nonresident decedent must be filed to obtain a release from the state's lien.
Where Can I Find Additional Information About the New Jersey Inheritance Tax?
NOTE: State tax laws can change frequently, and the above information may not reflect the most recent changes. Please consult with an accountant or an attorney for current tax or legal advice. The information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.