New Jersey law provides several gross income tax deductions that can be taken on the New Jersey Income Tax return. New Jersey does not allow federal deductions, such as mortgage interest, employee business expenses, and IRA and Keogh Plan contributions.
Full-year residents can only deduct amounts paid during the tax year. Part-year residents can only deduct those amounts paid while they were New Jersey residents.
Senior 65+ Exemptions
You can claim a $1,000 exemption if you were 65 or older on the last day of the tax year. If you are filing jointly, your spouse can take a $1,000 exemption if they were 65 or older on the last day of the tax year. You cannot claim this exemption for your domestic partner or dependents.
Blind or Disabled Exemptions
You can claim a $1,000 exemption if you were blind or disabled on the last day of the tax year. If you are filing jointly, your spouse can take a $1,000 exemption if they were blind or disabled on the last day of the tax year. You cannot claim this exemption for your domestic partner or dependents.
You can claim a $6,000 exemption if you are a military veteran who was honorably discharged or released under honorable circumstances from active duty any time before the last day of the tax year. If you are filing jointly, your spouse can also take this exemption if they are a military veteran who meets the requirements. You cannot claim this exemption for your domestic partner or dependents.
You can claim a $1,500 exemption for each child or dependent who qualifies as your dependent for federal tax purposes.
Dependent Attending College Exemptions
You can claim an additional $1,000 exemption for each dependent student if all the requirements below are met. You cannot claim this exemption for yourself, your spouse, or your domestic partner.
You can deduct from your gross income certain medical expenses that you paid during the year for yourself, your spouse or domestic partner, and your dependents. However, you cannot deduct expenses for which you were reimbursed. Only expenses that exceed 2% of your income can be deducted.
Some examples of allowable medical expenses are: payments for doctor's visits, dental care, hospital care, eye examinations, eyeglasses, medicine, and x-rays or other diagnostic services directed by your physician or dentist. Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions. You also can deduct transportation costs that are allowable on your federal return. If you deduct medical expenses in one year and are reimbursed in the next, you must include the reimbursement as income in the year you receive the payment.
Part of your medical expenses may include Archer MSA Contributions or a Self-Employed Health Insurance Deduction.
Archer MSA Contributions
New Jersey follows the federal rules for deducting qualified Archer MSA contributions. Your contribution cannot be more than 75% of your annual health plan deductible (65% if you have a self-only plan). Excess contributions that you withdraw before the due date of your tax return are not taxable. However, you must report the earnings associated with the excess contributions you withdraw as wages on the 'Wages, salaries, tips, and other employee compensation' line of your tax return.
Self-Employed Health Insurance Deduction
If you are considered self-employed for federal tax purposes, or you received wages in 2023 from an S corporation in which you were a more-than-2% shareholder, you can deduct the amount you paid during the year for health insurance for yourself, your spouse/civil union partner or domestic partner, and your dependents. Your deduction cannot be more than the amount of your earned income, as defined for federal tax purposes, from the business under which the insurance plan was established.
Note: For federal purposes, you may be able to deduct amounts paid for health insurance for any child of yours who was under age 27 at the end of 2023. However, for New Jersey purposes, you can deduct these amounts only if the child was your dependent. For more information, see Technical Advisory Memorandum TAM 2011-14.
Alimony and Separate Maintenance Payments
You can deduct from gross income court-ordered alimony or separate maintenance payments you made. Do not deduct payments for child support.
Qualified Conservation Contributions
You can deduct from gross income qualified conservation contributions you made, as defined in IRC Sec. 170(h), of a qualified real property interest in property located in New Jersey. The deduction is the amount of the contribution allowed as a deduction in calculating your taxable income for federal purposes.
Health Enterprise Zone Deduction
If you provide primary care services in a qualified medical or dental practice you own that is located in or within five miles of a designated Health Enterprise Zone (HEZ), you may be able to deduct a percentage of the net income from that practice. Partners and S corporation shareholders of a qualified practice enter the HEZ deduction amount listed on Schedule NJK-1, Form NJ-1065, or Schedule NJ-K-1, Form CBT-100S. Sole proprietors must calculate the amount of their HEZ deduction. See Technical Bulletin TB-56 , Health Enterprise Zones, for eligibility requirements and how to calculate the HEZ deduction.
Alternative Business Calculation Adjustment
If you have losses in certain business-related categories of income, you may be able to use those losses to calculate an adjustment to your gross income. In addition, you can carry forward unused losses in those categories for up to 20 years to calculate future adjustments. The categories of income that are included in the adjustment calculation are: net profits from business; net gains or net income from rents, royalties, patents, and copyrights; distributive share of partnership income; and net pro rata share of S corporation income. Complete Schedules NJ-BUS-1 and NJ-BUS-2 to calculate the amount of the adjustment or loss carryforward.
Organ/Bone Marrow Donation Deduction
If you donated an organ or bone marrow to another person for transplantation, you can deduct up to $10,000 of unreimbursed expenses for travel, lodging, and lost wages related to the donation. This deduction is also available to your spouse (if filing jointly) or any dependents you claim on your return. You must take the deduction the year in which the transplant occurs. If you had unreimbursed expenses in the year prior to or in the year after the transplant, they must be claimed in the year they were incurred. The combined deduction amount cannot exceed $10,000.
Property Tax Deduction/Credit
If you were a New Jersey homeowner or tenant, you may qualify for either a property tax deduction or a refundable property tax credit. More information is available on the credit/deduction.
The New Jersey College Affordability Act
The New Jersey College Affordability Act created three income tax deductions for taxpayers with gross income under $200,000: