5 Key Tax Updates to Be Aware of in 2023

Brought to you by KI Legal in Partnership with Mandelbaum Barrett

It is always important to stay up-to-date on the latest tax updates. In this article, Martin D. Hauptman – Partner in Mandelbaum Barrett’s Trusts & Estates, Tax & ERISA Practice Groups – brings 5 key tax updates to be aware of in 2023 to the table.

1. Challenge to partner fee structure rejected.

The U.S. District Court has rejected a challenge to the per partner fee structure provided by N.J. Rev. Stat. § 54A:8-6(b)(2)(A). Under that statute, each entity classified as a partnership for federal income tax that has income derived from New Jersey sources and more than two owners must pay a filing fee of $150 for each owner of an interest in the entity up to a maximum of $250,000. The court stated that it did not have jurisdiction to hear the case and that such challenges must be raised in state court where a similar challenge to the statute has been rejected. (Energy Transfer L.P. v. Ficara, U.S. Dist. Ct. (N.J.),  Dkt. No. 2131-85, 11/29/2022.)

2. Aid to ITIN holders.

The New Jersey Division of Taxation has announced that under the new ITIN Holders Direct Assistance Program, the Division will be sending aid payments to New Jersey residents who used Individual Taxpayer Identification Numbers (ITINs) when filing their 2021 New Jersey Income Tax returns. An ITIN is a tax processing number issued by the Internal Revenue Service to individuals who are required to have a U.S. taxpayer identification number but who do not have a Social Security number. Subject to gross income limits, taxpayers will receive a $500 payment for each ITIN holder listed on the tax return. The gross income tax limits are $25,760 for the taxpayer with $9,080 added for each additional ITIN holder listed on the return.

3. Calculating the Anchor benefit for homeowners.

The benefit is $1,500 for homeowners with New Jersey gross income that does not exceed $150,000 and $1,000 for homeowners with New Jersey gross income that is greater than $150,000 but does not exceed $250,000. The Division provides an example of calculating the benefit for two unmarried owners of a residence. Homeowner A and Homeowner B were assessed and paid a total of $2,500 in 2019 total property tax. Both owners occupied the property on October 1, 2019. Each owner is considered a 50% owner of the property and each owner’s share of property tax is 50% of the total tax amount: $1,250 ($2,500 x.50). Homeowner A’s income is $160,000 which entitles them to a benefit amount of $1,000. Therefore, Homeowner A is entitled to receive $1,000. Homeowner B’s income is $80,000 which entitles them to a benefit amount of $1,500. The lessor of the benefit amount or share of property tax is $1,250 which will be Homeowner B’s benefit. The total amount of all property tax relief benefits a homeowner receives cannot be more than the property taxes paid on their main home for the same year (ANCHOR benefit, Senior Freeze, Property Tax Deduction for senior citizens/disabled persons, and Property Tax Deduction for veterans). 

4. Interest rate on outstanding tax balances

The New Jersey Division of Taxation has announced that the assessed interest rate on outstanding tax balances for the period from January 1, 2023 to March 31, 2023 will be 10%. The rate for the period from October 1, 2022 to December 31, 2022 is 9.25%.

5. Updates to the New Jersey Corporation Business Tax

The New Jersey Division of Taxation has advised taxpayers that it has adopted rules on the exclusion of income that was exempt from federal taxation pursuant to a tax treaty that are in line with the decision in Infosys Limited of India v. Div. of Taxation, N.J. Tax Ct., Dkt. No. 012060-2016, 03/19/2018. This means, that for taxpayers filing on a separate company, water’s-edge or affiliated group basis, income that was protected by a tax treaty is not required to be added back to the entire net income for New Jersey Corporation Business Tax (CBT) purposes, except as may be required pursuant to other related party addback statutory provisions. For those CBT returns filed for tax years still within the statute of limitations, if a taxpayer added back this treaty exempted income, it may file an amended return. For taxpayers filing on a world-wide group basis, the income from foreign corporations and foreign non-corporate entities is included in the entire net income without regard to any treaty protections. The application of treaty protections to a world-wide group is contrary to the legislative intent in providing a world-wide election which was to tax the world-wide group on all of its global income regardless of whether or not the jurisdiction where the income is earned is subject to a tax treaty with the United States. The Division will update the return instructions for subsequent tax years as the returns for the 2018 through 2021 returns have already been filed.

For more information on these tax updates, or to discuss your particular tax-related matter, contact Martin D. Hauptman at (646) 766-8308 or email mhauptman@mblawfirm.com to discuss.

For guidance with estate planning and asset protection, contact KI Legal at (646) 766-8308 or email info@kilegal.com to discuss.

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