Last Updated: April 2026
New Jersey is one of the highest-tax states in the USA, combining a top income tax rate of 10.75% (among the highest in the country), property taxes that are the single highest in the nation at an effective average of 2.23%, and a unique inheritance tax that survived long after the estate tax was abolished. For the millions of New Jersey residents who commute into New York City, the tax picture is even more complicated: they owe both New Jersey income tax and New York City income tax on their earnings, with only a partial credit for relief.
This guide breaks down every layer of New Jersey taxation for 2026 — income tax brackets, the property tax landscape, the often-misunderstood inheritance tax, sales tax rules, and the practical implications for NYC commuters, retirees, and high-income earners considering whether New Jersey’s lower cost of living and housing (versus Manhattan) truly compensates for its tax burden.
New Jersey uses a seven-bracket progressive income tax system. Unlike flat-rate states, each dollar you earn above a threshold is taxed at a higher marginal rate. Here are the 2026 brackets for single filers:
| Taxable Income | Rate |
|---|---|
| $0 – $20,000 | 1.4% |
| $20,001 – $35,000 | 1.75% |
| $35,001 – $40,000 | 3.5% |
| $40,001 – $75,000 | 5.525% |
| $75,001 – $500,000 | 6.37% |
| $500,001 – $1,000,000 | 8.97% |
| Over $1,000,000 | 10.75% |
The effective tax burden at different income levels makes it easy to see why high earners consider leaving New Jersey:
| Annual Income | NJ Effective Rate (approx) | NY State Only | PA Flat Rate | Florida (no income tax) |
|---|---|---|---|---|
| $75,000 | ~4.8% | ~5.3% | 3.07% | 0% |
| $200,000 | ~6.1% | ~6.6% | 3.07% | 0% |
| $500,000 | ~7.2% | ~9.1% | 3.07% | 0% |
| $1,500,000 | ~9.8% | ~10.3% | 3.07% | 0% |
New Jersey does not offer a broad retirement income exclusion like Illinois or Pennsylvania. Social Security benefits are taxable for higher earners: if gross income is below $100,000 (married filing jointly), Social Security is exempt; above that threshold, it becomes partially taxable. Pension income is generally taxable, though there are small exclusions for taxpayers over 62 under certain income limits. IRA and 401(k) distributions are taxable to the extent contributions were deducted federally (New Jersey does not allow a deduction for traditional IRA or 401(k) contributions, so the portion already taxed by NJ is not taxed again on withdrawal — a basis recovery rule).
New Jersey’s property taxes are set at the municipal level and vary significantly by town. The state average effective rate is 2.23% — far above any other US state. The median annual property tax bill in New Jersey is approximately $9,500, compared to a national median of roughly $2,800. In affluent towns like Short Hills, Summit, and Princeton, annual bills of $20,000–$30,000 are not uncommon.
| County / Area | Approximate Effective Rate | Median Annual Bill |
|---|---|---|
| Bergen County | 2.18% | ~$12,000 |
| Morris County | 2.10% | ~$11,500 |
| Monmouth County | 1.96% | ~$9,800 |
| Essex County | 2.42% | ~$10,200 |
| Ocean County | 1.78% | ~$6,400 |
| Atlantic County | 2.55% | ~$5,800 |
New Jersey offers several programs to offset the burden: the Homestead Benefit (a credit against property tax for homeowners meeting income limits); the ANCHOR Program (Affordable New Jersey Communities for Homeowners and Renters), which provides rebates to homeowners up to $1,500 and renters up to $450; and Senior Freeze (Property Tax Reimbursement), which locks in property tax at a base year amount for qualifying seniors and disabled persons. These programs provide meaningful relief for lower- and middle-income residents but represent a fraction of the total property tax bill for higher earners.
Approximately 400,000 New Jersey residents commute into New York City each day. The tax consequence is significant: as a non-resident working in New York, you owe New York State income tax (4.0–10.9% progressive) plus New York City income tax (3.078–3.876% additional). New Jersey provides a credit for taxes paid to other states against your NJ income tax liability — but the credit is limited to the NJ tax that would have been owed on that income at NJ rates. If your combined NY State + NYC tax exceeds your NJ credit, you effectively pay both. For a commuter earning $200,000 in NYC, the total state+city tax bill can easily reach $28,000–$35,000 depending on exact circumstances. The popular argument for living in NJ rather than NYC (avoiding NYC rent and high COL) must be weighed against this dual tax obligation, which often eliminates much of the cost-of-living saving.
New Jersey abolished its estate tax effective January 1, 2018, removing a major burden on estates of NJ residents. However, New Jersey still has an inheritance tax, which is distinct from an estate tax: it is a tax paid by beneficiaries based on their relationship to the deceased, not a tax on the estate itself.
This means that leaving money to a sibling, a niece or nephew, a long-term partner (unless legally registered), or a friend can trigger a significant NJ inheritance tax. Estate planning for NJ residents must account for this even though the estate tax is gone.
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US Expat + New Jersey Filing Help →No — New Jersey abolished its estate tax effective January 1, 2018. Prior to that, NJ had one of the lowest estate tax thresholds in the country ($675,000). As of 2018, there is no New Jersey estate tax, and estates of NJ residents are only subject to the federal estate tax (which has a $13.61M exemption in 2024, indexed for inflation). However, NJ still has an inheritance tax, which applies to beneficiaries who are not spouses or direct descendants (children, grandchildren). Siblings, nieces, nephews, and unrelated beneficiaries can face 11–16% inheritance tax on assets received. This is a critical distinction for estate planning.
New Jersey exempts Social Security income from state income tax if your gross income (including Social Security) is $100,000 or less (married filing jointly). If gross income exceeds $100,000, Social Security benefits become taxable to the extent they are taxable federally (up to 85% of benefits). This is more generous than states like Minnesota that tax SS at most income levels, but less generous than states like Florida or Pennsylvania that exempt SS entirely regardless of income. For retirees with income between $100,000 and $150,000, careful planning can sometimes keep income below the threshold.
New Jersey residents who work in New York City are taxed as non-residents by both New York State and New York City on their NYC-earned income. New York State non-resident rates reach up to 10.9%; NYC adds 3.078–3.876% on top (NYC taxes non-residents working in the city the same as residents). New Jersey provides a credit for taxes paid to other states, but this credit only offsets the NJ tax on that income — the excess NY+NYC tax above the NJ rate is an additional cost. For a $250,000 salary, this dual taxation can cost $8,000–15,000 more per year than working in a NJ-based job and paying only NJ income tax.
The ANCHOR (Affordable New Jersey Communities for Homeowners and Renters) program replaced the Homestead Benefit and provides direct property tax relief. Homeowners with incomes up to $150,000 can receive a benefit of up to $1,500; homeowners with incomes between $150,000 and $250,000 receive up to $1,000. Renters with incomes up to $150,000 receive up to $450. The benefit is applied as a credit to your property tax bill or as a direct payment to renters. Applications are typically due in the fall for the prior tax year. While meaningful, the ANCHOR benefit is modest relative to NJ’s median $9,500 annual property tax bill.
Yes — most clothing is exempt from New Jersey’s 6.625% sales tax. This includes everyday apparel and footwear. However, fur clothing, formal wear rentals, and sporting equipment (e.g., cleats, ski boots) are generally taxable. Grocery food items for home consumption are also exempt, as are prescription and over-the-counter drugs. In Urban Enterprise Zones (UEZ) — certain economically distressed areas — the sales tax rate is halved to 3.3125% on qualifying purchases. New Jersey’s exemption on clothing and groceries provides some relief from the high overall tax burden, particularly for lower-income residents.
Yes, but with the federal $10,000 SALT (State and Local Tax) deduction cap, which limits the combined deduction for state income taxes and property taxes to $10,000 per return (regardless of filing status for most taxpayers, with a $5,000 cap for married filing separately). For a New Jersey homeowner paying $12,000 in property taxes and $8,000 in state income taxes, the total SALT is $20,000 — but only $10,000 is deductible federally. This cap, introduced by the 2017 Tax Cuts and Jobs Act and extended through 2025 (with the 2026 treatment subject to legislative action), significantly increased the effective federal + state tax burden for New Jersey’s middle- and upper-income homeowners. NJ has been among the states most affected by the SALT cap.
New Jersey uses a seven-bracket progressive system. For single filers: 1.4% on income up to $20,000; 1.75% on $20,001–$35,000; 3.5% on $35,001–$40,000; 5.525% on $40,001–$75,000; 6.37% on $75,001–$500,000; 8.97% on $500,001–$1,000,000; and 10.75% on income above $1,000,000. The top 10.75% millionaire’s tax rate, introduced in 2020, makes New Jersey one of only a few states with a double-digit income tax rate. Married filing jointly uses the same rates but with different bracket thresholds.