STATE OF NEW JERSEY
216th LEGISLATURE
PRE-FILED FOR INTRODUCTION IN THE 2014 SESSION
Sponsored by:
Assemblyman JAY WEBBER
District 26 (Essex, Morris and Passaic)
Assemblywoman ALISON LITTELL MCHOSE
District 24 (Morris, Sussex and Warren)
Co-Sponsored by:
Assemblyman Space
SYNOPSIS
Excludes overtime pay of certain employees from gross income tax.
CURRENT VERSION OF TEXT
Introduced Pending Technical Review by Legislative Counsel
An Act excluding the overtime compensation of certain employees from gross income under the gross income tax, and supplementing Title 54A of the New Jersey Statutes and amending N.J.S.54A:7-1.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. (New section) Gross income shall not include a payment a taxpayer receives in return for working time in excess of 40 hours in a week if the taxpayer is subject to the overtime rate mandated under section 5 of P.L.1966, c.113 (C.34:11-56a4).
2. N.J.S.54A:7-1 is amended to read as follows:
54A:7-1. Requirement of withholding tax from wages.
(a) General.--From and after September 1, 1976, every employer maintaining an office or transacting business within this State and making payment of any wages subject to New Jersey personal income tax or making payment of any remuneration for employment subject to contribution under the New Jersey "unemployment compensation law" pursuant to R.S.43:21-1 et seq. that is subject to New Jersey personal income tax to a resident or nonresident individual shall deduct and withhold from such wages for each payroll period a tax computed in such manner as to result, so far as practicable, in withholding from the employee's wages during each calendar year an amount substantially equivalent to the tax reasonably estimated to be due resulting from the inclusion in the employee's New Jersey income of his wages received during such calendar year. The method of determining the amount to be withheld shall be prescribed by regulations of the director, with due regard to the withholding exemptions of the employee.
(b) Withholding exemptions.--For purposes of this section:
An employee shall be entitled to the equivalent of the same number of New Jersey withholding exemptions as the number of withholding exemptions to which he is entitled for Federal income tax withholding purposes. An employer may rely upon the number of Federal withholding exemptions claimed by the employee.
(c) The payor of New Jersey gambling winnings shall withhold New Jersey gross income tax on those winnings at a rate of 3% in all instances where the payor is required to withhold for federal income tax purposes under subsection (q) of section 3402 of the federal Internal Revenue Code of 1986 (26U.S.C. s.3402), as amended, except that this subsection shall not apply to the New Jersey State Lottery.
(d) A payment an employee receives in return for working time in excess of 40 hours in a week shall be exempt from withholding if the employee is subject to the overtime rate mandated under section 5 of P.L.1966, c.113 (C.34:11-56a4).
(cf: P.L.2006, c.85, s.1)
3. This act shall take effect immediately and shall apply to taxable years beginning on or after January 1 following the date of enactment.
STATEMENT
This bill excludes from income taxation the overtime pay of employees who are subject to the minimum overtime rate established under section 5 of P.L.1966, c.113 (C.34:11-56a4). That law requires that employees receive at least 150 percent of their regular hourly wage for each hour of working time in excess of 40 hours in a week. Bona fide executive, administrative, and professional employees are excluded from the overtime regulation and hence the income tax exemption, as are farm laborers, salespersons of motor vehicles, outside salespersons, hotel employees, employees who drive limousines, and employees of common carriers of passengers by motor bus, among others.
The legislation also instructs employers not to withhold State gross income tax from tax-exempt overtime compensation.
Untaxing overtime pay does not only duly reward hard-working New Jerseyans, but it also provides the economy with a much-needed stimulus. The economy benefits because the tax cut boosts the after-tax income of households with overtime-working income earners. This, in turn, adds to their consumption spending. Moreover, since the tax cut makes overtime more lucrative, it also creates an incentive to work more and hence to improve the State’s overall economic performance.