New Jersey for NRI families: no standard deduction, taxed 401(k) deferrals and the inheritance tax

New Jersey has a large Indian-American population and a tax system that behaves differently from the federal one. The figures are for tax year 2025 unless stated.

Who is a New Jersey resident

The state treats you as a resident in two situations. You are domiciled in New Jersey, meaning it is your permanent home that you intend to return to, and you keep a permanent home here. Or you are not domiciled here but you keep a permanent home in the state and spend more than 183 days in it. A home is not permanent if you keep it only for a temporary purpose, such as a short job assignment.

New Jersey has no part-year return. If you move in or out, you file the resident return for the resident period and a non-resident return if you also had New Jersey income as a non-resident. Residents living or working abroad have the same duties as residents at home.

Rates

The rates are graduated. For a single filer in 2025 the schedule runs 1.4% to $20,000, 1.75% to $35,000, 3.5% to $40,000, 5.525% to $75,000, 6.37% to $500,000, 8.97% to $1 million and 10.75% above that. Joint filers have wider bands: for example 5.525% from $80,000 to $150,000 and 6.37% from $150,000 to $500,000, with the same 8.97% and 10.75% above that. There is no separate lower rate for capital gains. Gains are taxed on the same schedule as other income.

Where New Jersey differs from the federal return

• No standard deduction. The state gives exemptions instead: $1,000 for you and for a spouse, $1,500 for each dependent, and extra amounts for age, blindness and college students.
• 401(k) contributions are taxed. Your contributions to a 401(k) and similar plans count as New Jersey wages, so your New Jersey taxable income can be higher than the federal figure. Use the state wages box on the W-2, not the federal one.
• Property tax. You can deduct up to $15,000 of property tax on your main home (or 18% of rent for tenants), or claim a refundable credit if that is worth more.
• Worldwide income. A resident's foreign income is taxable.

No credit for Indian tax

New Jersey allows a credit for income tax paid to other US states, claimed on Schedule NJ-COJ. That schedule excludes income subject to tax by a foreign country. So Indian tax that reduces your federal bill through the foreign tax credit gives you nothing on the New Jersey return. The result for someone with Indian rent or interest is that the same income can be taxed in full by India, then by the federal return less credit, then by New Jersey with no credit at all. See the credit article.

Working in New York

Many residents commute to New York. New Jersey gives a credit for tax paid to New York on wages, limited to the lesser of the New Jersey tax on that income and the New York tax paid. Interest, dividends and gains on securities generally do not qualify. The details of New York's rules for remote workers are separate and should be checked.

Payroll deductions

Employees pay into the state's Family Leave Insurance and Disability Insurance programmes, which for 2026 are 0.23% and 0.19% on wages up to $171,100, plus a small unemployment contribution. Confirm the current rates on your pay slip.

The inheritance tax

New Jersey ended its estate tax for deaths from 2018 but still has an inheritance tax, which depends on who inherits. Spouses, children, grandchildren, parents and grandparents are in Class A and are exempt. Siblings and children's spouses are taxed from $25,000 at 11% to 16%. Nieces, nephews, friends and everyone else are taxed at 15% on the first $700,000 and 16% above. Charities are exempt.

For a family with parents and children, Class A means the tax rarely applies. For a New Jersey resident who inherits from, or leaves assets to, a sibling or a nephew, it can be large. Whether the tax reaches property in India is not stated clearly in the state's instructions. Treat it as an open question for your advisers.

Forms and dates

Residents file Form NJ-1040, non-residents NJ-1040NR, with Schedule NJ-COJ for the credit for other states. The return is due on 15 April. An extension to file needs Form NJ-630 or the federal extension, and most of the tax must be paid by April, because there is no extension to pay.

New Jersey's domicile rules look at your home, not your visa. If you keep a house in New Jersey while on assignment elsewhere, you may still be a resident.