New Jersey is one of only a few states that impose both an inheritance tax and a state estate tax. The inheritance tax is applies when someone who lived in New Jersey, or owned property there, leaves property to someone who isn’t a close relative. The tax rate depends on how closely the inheritors and deceased person were related.
How Inheritors Are Categorized
New Jersey law puts inheritors into different groups, based on their family relationship to the deceased person.
Class A beneficiaries are exempt from the inheritance tax. They includes the deceased person’s:
- spouse, domestic partner, or civil union partner
- parent or grandparent
- child (biological, adopted, or mutually acknowledged)
- stepchild (but not stepgrandchild or great-stepgrandchild)
- grandchild or other lineal descendant of a child
Class B was deleted when New Jersey law changed.
Class C includes the deceased person’s:
- brother or sister
- spouse or civil union partner of the deceased person's child
- surviving spouse or civil union partner of the deceased person's child
The first $25,000 of property inherited by someone in Class C is not taxed. On amounts exceeding $25,000, the tax rates are:
- Next $1,075,000: 11%
- Next $300,000: 13%
- Next $300,000: 14%
- Over $1,700,000: 16%
Class D includes everyone else. There is no special exemption amount, and the applicable tax rates are:
- First $700,000: 15%
- Over $700,000: 16%
Class E includes the State of New Jersey or any of its political subdivisions for public or charitable purposes, an educational institution, church, hospital, orphan asylum, public library, and some other nonprofit agencies. These beneficiaries are exempt from inheritance tax.
Other Inheritance Tax Exemptions
Other tax exemptions apply to all beneficiaries, in every legal classification. The New Jersey inheritance tax is not collected on:
- Transfers of less than $500
- Life insurance proceeds paid to a named beneficiary
- Charitable transfers for the use of an educational institution, church, hospital, public library, and so on
- Payments from the New Jersey Public Employees Retirement System, the New Jersey Teachers’ Pension and Annuity Fund, or the New Jersey Police and Firemen's Retirement System
- Federal Civil Service Retirement benefits payable to a beneficiary other than the deceased person’s estate
- Annuities payable by the U.S. government under the Retired Serviceman’s Family Protection Plan or the Survivor Benefit Plan to a beneficiary other than the estate
Gifts Made During Your Lifetime
If you make gifts in the three years before your death, those gifts are also subject to New Jersey inheritance tax, unless the recipients are exempt under the rules discussed above. They aren't taxed, however, if it can be proved that you didn't give away the money or property "in contemplation of death."
Filing the Inheritance Tax Return
It’s the job of the personal representative (executor or administrator) of the estate to file an inheritance tax return. Only one return needs to be filed, even if several people owe inheritance tax.
New Jersey inheritance tax returns (Form IT-R, if the deceased person was a New Jersey resident), instructions, and current tax rates are available on the state Division of Taxation website. The tax return, along with copies of the will (if any) and the deceased person’s last federal income tax return, is filed with the New Jersey Division of Taxation. The return must be filed, and any tax paid, eight months from the date of death. Interest accrues on any unpaid tax. The state can grant an extension of up to four months to file the return, but the tax must still be paid by the original deadline.
Inheritance Tax Waivers
Certain property can’t be transferred out of the estate until the inheritance tax is paid and the state issues a tax waiver. If no tax is due, someone who is a Class A beneficiary can file a “Request for Real Property Tax Waiver.” If the waiver is granted, an inheritance tax return doesn’t have to be filed.