The Income Subject to Tax section helps ensure your New Jersey return accurately reflects income that is taxable in New Jersey. Because New Jersey tax laws differ from federal tax laws, some amounts transferred from your federal return may need to be adjusted before your New Jersey taxable income is calculated.
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What Is the Income Subject to Tax Section?
When you prepare a New Jersey return, information from your federal return is automatically transferred into the state return. However, New Jersey does not always follow federal tax rules. As a result, certain income items may need to be added, removed, or adjusted for New Jersey tax purposes.
Use this section to:
- Report income that is taxable in New Jersey but may not be fully reflected on your federal return.
- Remove income that is exempt from New Jersey taxation.
- Make adjustments for part-year residency.
- Report New Jersey-specific taxable income amounts.
Taxable Gambling Winnings
Enter Taxable Gambling Winnings That Are Taxable to New Jersey
Enter any gambling winnings that are taxable to New Jersey.
New Jersey taxes net gambling winnings, including:
- Casino winnings
- Track betting winnings
- Bingo winnings
- Out-of-state lottery winnings
- New Jersey Lottery and multi-state lottery prizes when an individual prize exceeds $10,000
You may reduce winnings by gambling losses incurred during the same tax year. If losses equal or exceed winnings, no amount is reported. Documentation such as casino win/loss statements, gambling logs, canceled checks, or losing tickets should be retained with your records.
Part-Year Resident Adjustments to Federal Alimony Received
Adjustments to Federal Alimony Received
Federal alimony information may transfer automatically from your federal return.
Enter an adjustment if the federal amount includes alimony received during a period when you were not a New Jersey resident. New Jersey part-year residents generally report only income received while they were New Jersey residents.
Do not include child support payments, as child support is not treated as taxable alimony.
Adjustments to Federal Other Income
Adjustments to Federal Other Income
Federal "Other Income" can contain items that are treated differently for New Jersey purposes. Use this field to correct any amounts automatically transferred from the federal return when New Jersey tax law requires a different treatment.
Examples of income commonly reported as other income include:
- Prizes and awards
- Income from estates and trusts
- Income in respect of a decedent
- Certain taxable scholarships and fellowship grants
Review the income source carefully before making an adjustment.
Military Pension, Survivor Benefits, and Other Exempt Pension Income
Taxpayer and Spouse Pension Exclusions
Enter pension income that is exempt from New Jersey tax if it was included in your federal income.
Examples include:
- United States military pensions
- Military survivor benefit payments
- Certain nonresidency pension income
- Other qualifying pension income exempt from New Jersey taxation
If the exempt income was included in federal taxable income, enter the amount as instructed by the software. This adjustment prevents the income from being taxed by New Jersey.
Tax-Exempt Pensions, Annuities, and IRA Withdrawals
Enter Tax-Exempt Retirement Income
Some retirement income may be excluded from New Jersey taxation.
Use this field to enter any pension, annuity, or IRA withdrawal amount that qualifies as tax exempt under New Jersey rules and was included in federal income.
New Jersey provides various retirement income exclusions and exemptions that may reduce or eliminate the taxable amount reported on your return.
Taxable Scholarships Included on Your Federal Return
Taxable Amount of Scholarships Included on Federal Return
Enter scholarship or fellowship income that is taxable to New Jersey.
Generally, a scholarship or fellowship grant is exempt only if:
- Its primary purpose is to further the recipient's education or training;
- It is not payment for services;
- It is not primarily for the benefit of the grantor.
If these requirements are not met, the scholarship may be taxable and must be included in New Jersey income.
Part-Year Resident Interest Income
Enter Interest Income (Part-Year Residents Only)
Part-year residents should enter only the interest income received during the period they were New Jersey residents.
Interest shown on the federal return may represent income earned throughout the entire year, so an adjustment may be necessary if residency changed during the year.
Part-Year Resident Dividend Income
Enter Dividend Income (Part-Year Residents Only)
If you were a part-year New Jersey resident, enter only the dividend income attributable to your New Jersey residency period.
This adjustment helps ensure that only the portion taxable by New Jersey is included on the return.
Net Profits From Business
Adjust Business Income Pulled From the Federal Return
If your business income requires a New Jersey adjustment, select Begin to review Net Profits From Business.
New Jersey business income calculations may differ from federal amounts because New Jersey does not allow certain federal deductions or follows different tax treatment for specific items.
Enter any necessary adjustments to ensure your New Jersey business income is reported correctly.
Third-Party Sick Pay Not Taxable to New Jersey
Amount of Third-Party Sick Pay Not Taxable to NJ
Certain third-party sick pay may be exempt from New Jersey tax.
New Jersey generally taxes sick pay as wages. However, payments received because of a personal injury or sickness may be exempt when paid through an accident or health insurance plan rather than directly by the employer. These payments may come from:
- An insurance company
- A union
- A state temporary disability plan
If exempt third-party sick pay was included in federal wages reported on Form W-2, enter the non-taxable amount here so it can be removed from New Jersey taxable wages.
Common Mistakes to Avoid
- Reporting New Jersey Lottery winnings of $10,000 or less as taxable income. These prizes are generally not taxable for New Jersey purposes.
- Including interest or dividend income earned while you were not a New Jersey resident.
- Forgetting to exclude qualifying military pensions or survivor benefits.
- Entering child support as taxable alimony.
- Leaving taxable scholarship income unreported when it does not qualify for the New Jersey exemption.