New Jersey Senate Bill S1704

New Jersey 2022-2023 Regular Session

• Introduced: 2/28/22
• Refer: 2/28/22

Caption

Excludes deferred compensation of certain public school and federal tax-exempt organization employees from current taxation under the gross income tax.

Impact

The implementation of S1704 would level the playing field between employees of private enterprises and those employed by public and charitable entities. With this bill, employees of schools and federally tax-exempt organizations would be able to set aside pre-tax dollars for retirement, similar to how employees in the private sector do. This change not only fosters increased retirement savings among employees in these sectors but also encourages these groups to participate more actively in retirement planning, potentially leading to greater financial security in their later years. The bill is expected to increase the attractiveness of roles within public and non-profit organizations, as prospective employees may view these enhanced benefits as a valuable incentive.

Summary

Senate Bill S1704 proposes an important amendment to New Jersey's gross income tax laws by excluding deferred compensation contributions made by employees of certain public schools and federally tax-exempt organizations from taxable income. This bill seeks to provide tax relief to employees who contribute to retirement savings plans that are typically tax-deferred under federal law, specifically those plans aligned with section 403 of the Internal Revenue Code. Presently, such contributions are not recognized under New Jersey's tax laws, putting employees of non-profit sectors at a distinct disadvantage compared to their counterparts in for-profit sectors who benefit from similar tax-deferred arrangements under section 401(k).

Contention

While the bill does aim to provide equitable tax treatment, it may face contention regarding the state’s budget implications. Critics could argue that allowing such tax exclusions might reduce state revenues, raising concerns over its fiscal sustainability. Furthermore, discussions around tax fairness might emerge, particularly from those who believe that tax incentives should be uniformly applied across all sectors or that they could lead to inequities in public funding. Consequently, stakeholders must balance the desire to support public school and charity employees' retirement savings with ensuring that state finances remain robust.