LEGISLATIVE FISCAL ESTIMATE
SENATE COMMITTEE SUBSTITUTE FOR
SENATE, Nos. 737 and 951
STATE OF NEW JERSEY
220th LEGISLATURE
DATED: MARCH 9, 2022
SUMMARY
Synopsis: Excludes contributions made to certain retirement savings plans under
gross income tax.
Type of Impact: Annual State revenue losses, gains, and shifts across fiscal years
affecting the Property Tax Relief Fund.
Agencies Affected: Department of the Treasury.
Office of Legislative Services Estimate
Fiscal Impact
$204.6 million, of which indeterminate portions will be
Annual State Revenue Loss
revenue shifts and revenue losses across fiscal years
Annual State Revenue Gain Indeterminate
The Office of Legislative Services (OLS) estimates that shifting the taxation of employee
contributions to certain retirement savings plans under the gross income tax from the year of
contribution to the year of distribution (or withdrawal) will initially lower State revenue
collections by $204.6 million in the taxable year following enactment. The annual amount will
change in subsequent years in accordance with employee savings patterns.
The aggregate effect of the bill on gross income tax collections over time cannot be determined.
Some of the taxes that will no longer be collected in the year of contribution to concerned
retirement savings plans will instead be collected in the year of distribution from the plans,
some will be lost, and some may cause additional tax collections.
BILL DESCRIPTION
The bill defers the taxation of contributions to the following retirement savings plans under the
gross income tax from the year of contribution to the year of distribution or withdrawal: (1)
qualified defined benefit pension plans under section 401(a) of the federal Internal Revenue Code
(IRC); (2) annuity contracts under section 403(b) of the IRC; (3) qualified deferred compensation
plans of a state or local government under section 457 of the IRC; (4) the federal Thrift Savings
Office of Legislative Services Legislative Budget and Finance Office
State House Annex Phone (609) 847-3105
P.O. Box 068 Fax (609) 777-2442
Trenton, New Jersey 08625 www.njleg.state.nj.us
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Fund; and (5) individual retirement accounts under section 408 of the IRC. The tax deferral first
applies to contributions made in the taxable year beginning on January 1 next following enactment.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that shifting the taxation of employee contributions to certain retirement
savings plans under the gross income tax from the year of contribution to the year of distribution
(or withdrawal) will initially lower State revenue collections by $204.6 million in the taxable year
following enactment. The annual amount will change in subsequent years in accordance with
employee savings patterns.
Specifically, the OLS estimates that conferring tax-deferred status to contributions to the
following employer-sponsored retirement savings plans will cause the estimated initial non-
collection of the following State revenue: 1) defined benefit pension 401(a) plans, $87.9 million;
2) 403(b) annuity plans, $52.6 million; 3) section 408 IRAs, $24.1 million; 4) section 457 deferred
compensation plans, $14.3 million; and 5) federal Thrift Savings Fund, $25.6 million. These
estimates depend on a variety of State and federal data sources to account for the wide variety of
government employee and private sector savings vehicles affected by the bill. In most cases, the
estimates assume a 3.5 percent average marginal income tax rate for affected taxpayers.
The aggregate effect of this bill on gross income tax collections over time cannot be
determined. Some of the taxes that will no longer be collected in the year of contribution to
concerned retirement savings plans will instead be collected in the year of distribution from the
plans, some will be lost, and some may cause additional tax collections. The OLS, however, has
no informational basis to quantify the long-term net effect of this bill or its individual components.
Conceptually, revenue losses will accrue as some taxpayers will no longer reside in New Jersey
when they withdraw balances from their savings plans. In addition, some taxpayers will have
reduced gross incomes in retirement, which will be taxed at lower rates when they withdraw
balances from their retirement savings plans relative to the time of contribution.
The bill’s annual State revenue losses may be partially offset by indeterminate annual State
revenue increases due to two factors. First, deferring the taxation of contributions to retirement
savings plans will increase a taxpayer’s gross income in years in which the taxpayer withdraws
balances from the account. This may newly disqualify certain taxpayers from the full retirement
income exclusion under the gross income tax, which is fully available to joint filers with an annual
income not exceeding $100,000, single filers with an annual income not exceeding $75,000, and
married persons filing separately with an annual income not exceeding $50,000. A partial
exclusion is available for those with incomes as high as $150,000. Second, taxpayers who were
not New Jersey residents when they contributed to concerned employer-sponsored retirement
savings plans but reside in New Jersey when they withdraw balances therefrom, will newly pay
New Jersey gross income tax on their contributions.
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Section: Revenue, Finance, and Appropriations
Analyst: Scott A. Brodsky
Principal Fiscal Analyst
Approved: Thomas Koenig
Legislative Budget and Finance Officer
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the
failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).
Statutes affected: Introduced: 54A:6-21