Hi all,
My wife has income from, and qualifies for the federal Difficulty of Care income tax exclusion. The provider agency has advised us that New Jersey recently extended the DOC exclusion to State income taxes. For 2024 her W-2's show amounts for both NJ state income received as well as state income tax withholding. There was no federal income tax withheld. How should this be handled on our 2024 NJ return? Are the state withholding's
recovered somehow or should the DOC compensation not be included as NJ income on the return? Or is there some other way to handle this? The provider has made the necessary adjustments for future (2025) compensation. Thanks for any advice
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You should make the adjustment for the New Jersey wages to zero (0) in your W2 entry (Box 16). It should not be reported as income on the New Jersey return so you will get the withholding refunded.
Difficulty of Care payments do not fall within any of New Jersey’s defined taxable income categories and are not subject to Gross Income taxation.
Prior to the release of the 2024 NJ-1040 instructions, New Jersey tax forms and guidance did not specifically mention these payments or clarify whether they were includable or excludable from New Jersey Gross Income Tax. Due to this lack of explicit guidance by the State, some taxpayers may have assumed these payments were subject to New Jersey taxation.
To address public inquiries, the New Jersey Division of Taxation has now explicitly confirmed that Difficulty of Care payments are not taxable for New Jersey Gross Income Tax purposes. This clarification is officially included in the 2024 NJ-1040 Gross Income Tax Instructions. Taxpayers should not include these payments in any taxable income category on their New Jersey Gross Income Tax Return, even if already included on a W-2 or 1099. They can attach an explanation with the return.
Although this clarification first appears in the 2024 tax year instructions, it does not represent a change in policy—these payments have been recognized as non-taxable since the 2014 tax year, as long as they were excluded from federal taxable income under the same conditions.
If you mistakenly paid New Jersey State taxes on these payments in prior years, you may be eligible for a refund by filing an amended New Jersey tax return. However, please note that New Jersey law generally allows only three years from the original filing date, or two years from the time the tax was paid, whichever is later, to amend returns and claim refunds.
Please note that the New Jersey Earned Income Tax Credit (NJ EITC) accordingly does not apply to Difficulty of Care payments because these payments are considered non-taxable and do not count as "earned income" for New Jersey Gross Income Tax purposes.
For further information or assistance consult a tax professional.
You should make the adjustment for the New Jersey wages to zero (0) in your W2 entry (Box 16). It should not be reported as income on the New Jersey return so you will get the withholding refunded.
Difficulty of Care payments do not fall within any of New Jersey’s defined taxable income categories and are not subject to Gross Income taxation.
Prior to the release of the 2024 NJ-1040 instructions, New Jersey tax forms and guidance did not specifically mention these payments or clarify whether they were includable or excludable from New Jersey Gross Income Tax. Due to this lack of explicit guidance by the State, some taxpayers may have assumed these payments were subject to New Jersey taxation.
To address public inquiries, the New Jersey Division of Taxation has now explicitly confirmed that Difficulty of Care payments are not taxable for New Jersey Gross Income Tax purposes. This clarification is officially included in the 2024 NJ-1040 Gross Income Tax Instructions. Taxpayers should not include these payments in any taxable income category on their New Jersey Gross Income Tax Return, even if already included on a W-2 or 1099. They can attach an explanation with the return.
Although this clarification first appears in the 2024 tax year instructions, it does not represent a change in policy—these payments have been recognized as non-taxable since the 2014 tax year, as long as they were excluded from federal taxable income under the same conditions.
If you mistakenly paid New Jersey State taxes on these payments in prior years, you may be eligible for a refund by filing an amended New Jersey tax return. However, please note that New Jersey law generally allows only three years from the original filing date, or two years from the time the tax was paid, whichever is later, to amend returns and claim refunds.
Please note that the New Jersey Earned Income Tax Credit (NJ EITC) accordingly does not apply to Difficulty of Care payments because these payments are considered non-taxable and do not count as "earned income" for New Jersey Gross Income Tax purposes.
For further information or assistance consult a tax professional.
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