LEGISLATIVE FISCAL ESTIMATE
SENATE, No. 2003
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: JUNE 26, 2025
SUMMARY
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Synopsis: |
Expands eligibility under New Jersey earned income tax credit program to allow taxpayers who are victims of domestic abuse to claim credit with filing status of married filing separately. |
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Type of Impact: |
Annual decrease in State revenue deposited into Property Tax Relief Fund. |
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Agencies Affected: |
Department of the Treasury. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
FY 2026 & Thereafter |
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Annual State Revenue Loss |
$4.4 million to $13.3 million |
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· The Office of Legislative Services (OLS) estimates that the bill will reduce annual State gross income tax revenues by $4.4 million to $13.3 million beginning in FY 2026. The OLS projects that the bill will allow approximately 2,600 to 7,800 taxpayers to become eligible to claim the earned income tax credit.
· Information available through the Division of Taxation in the Department of the Treasury indicates that some taxpayers with a filing status of married filing separately are already eligible to claim the earned income tax credit. To the extent that taxpayers who would be eligible for earned income tax credit under the bill are already receiving the credit, the State revenue loss will be less than anticipated.
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Several public and nonprofit entities, including that National
Institutes of Health and the Centers for Disease Control and Prevention have
reported that many domestic violence cases are not reported to health
professionals or legal authorities. If the population of taxpayers that newly
qualifies for the earned income tax credit is larger than projected, the State
revenue loss will be higher.
BILL DESCRIPTION
This bill expands eligibility under the New Jersey earned income tax credit program for taxpayers who are victims of domestic abuse and cannot file a gross income tax return with the status of married filing jointly. Current law requires a married taxpayer to file a joint return to be eligible for the State earned income tax credit.
The bill exempts a married taxpayer from the joint return filing requirement imposed under current law if the taxpayer files as married filing separately and the taxpayer: (1) is living apart from the taxpayer’s spouse at the time the taxpayer files a gross income tax return; (2) is unable to file a joint return because the taxpayer is a victim of domestic abuse; and (3) indicates on the taxpayer’s gross income tax return that the taxpayer meets the criteria set forth in the bill.
Under the federal earned income tax credit program, a taxpayer with the status of married filing separately may qualify for the credit if they had a qualifying child who lived with the taxpayer for more than half of the tax year and either: (1) the taxpayer lived apart from their spouse for the last six months of the tax year; or (2) the taxpayer is legally separated under state law pursuant to a written separation agreement or a decree of separate maintenance, and the taxpayer did not live in the same household as their spouse at the end of the tax year.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS estimates that this bill will reduce State gross income tax revenues by $4.4 million to $13.3 million annually beginning in FY 2026. If enacted into law, the bill will allow approximately 2,600 to 7,800 taxpayers to become eligible to claim the earned income tax credit.
Information available through the Division of Taxation indicates that the maximum earned income limit for a taxpayer with the status of married filing separately is about $60,000. Data published by the Department of the Treasury in the Statistics of Income: 2018 Gross Income Tax Returns, indicates that about 51,700 tax returns filed by taxpayers with the status of married filing separately reported income of less than $60,000.
Due to a lack of precise data on the number of domestic abuse victims in New Jersey, the OLS relied upon national statistics to calculate the fiscal impact of the bill. According to the National Institutes of Health, about 10 million people are affected by domestic violence each year. This represents about 2.9 percent of the estimated U.S. population of 340 million people. However, public entities including the National Institutes of Health and the Centers for Disease Control and Prevention have reported that many domestic violence cases are not reported to health professionals or legal authorities. In order to account for the underreporting of domestic violence incidents, the OLS assumes that a larger proportion of potential taxpayers, between five and 15 percent of taxpayers with the status of married filing separately, may become eligible for the earned income tax credit.
Applying these ratios to the number of gross income tax filers with the status of married filing separately yields about 2,600 to 7,800 taxpayers. The State’s earned income tax credit is 40 percent of the federal benefit. Based on these calculations, the State credit amounts range from roughly $260 for a taxpayer with no children to $3,219 for a taxpayer with three or more children. The projected State revenue loss was calculated by multiplying the various earned income tax credit amount by the number of newly eligible taxpayers anticipated to receive each credit amount.
The OLS notes that there are several factors which may cause the actual State revenue loss to be higher or lower than anticipated. Some domestic abuse victims may already be eligible for the earned income tax credit under federal law. The American Rescue Plan Act of 2021 amended federal law to allow a taxpayer with the status of married filing separately to claim the earned income tax credit under certain circumstances. The Division of Taxation’s website also indicates that a taxpayer who is filing separately can claim the earned income tax credit if the taxpayer had a qualifying child who lived with them for more than half of 2024 and the taxpayer lived apart from their spouse for the last six months of 2024. To the extent that the State’s earned income tax credit program already allows taxpayers with the status of married filing separately to receive the credit, the State revenue loss will be less than anticipated. Finally, the bill does not define what qualifies as “domestic abuse” and does not establish a procedure for taxpayers to show how they would qualify for the earned income tax credit under the bill. The OLS cannot predict how implementation of the bill would impact how many taxpayers would qualify for the earned income tax credit and the anticipated State revenue loss.
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Section: |
Revenue, Finance, and Appropriations |
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Analyst: |
Staff Fiscal & Budget Analyst |
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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.).