WeVote
Log In

Bill

GR

Bill

A 5323

Modifies eligibility for alternative business calculation adjustment allowed under gross income tax.

2026-2027 Regular Session Introduced by Gabe Rodriguez and 1 co-sponsor

New Jersey caps the ABC tax deduction by income: up to 50% for GI ≤ $500k, 25% for GI > $500k–$1M, and 0% for GI over $1M, starting 2026.

Approved P.L.2026, c.22.
0
WeVote Research Nonpartisan
Bill Summary · A 5323

Summary of Bill A 5323 (Session 222, New Jersey)

Objective

This bill modifies eligibility and the generosity of the alternative business calculation adjustment under the New Jersey Gross Income Tax. It introduces income-based limits on who can claim the adjustment and reduces the deduction amount for higher-income taxpayers, with retroactive applicability to taxable years beginning on or after January 1, 2026.

Key Provisions

  • Retention and modification of the alternative business calculation (ABC) framework

    • The ABC allows a taxpayer to net certain categories of business income (net profits, rents/royalties/patents/copyrights, distributive share of partnership income, and net pro rata share of S corporation income) against each other when calculating the business increment, which is then partially deductible from taxable income.
    • Losses in these categories can be carried forward up to 20 years.

  • Tax base mechanics (how the ABC interacts with regular business income)

    • Regular business income is calculated by aggregating specific categories (b., d., k., p. as defined in statute) and then adjusted against the ABC to determine the business increment.
    • The business increment is subtracted from regular business income to determine the net business increment used for the deduction.

  • Deduction schedule (percentage of the business increment deductible)

    • Under current law (as amended by the bill) the deduction is 50% of the business increment, but the bill tightens eligibility based on gross income (GI).
    • The related schedule for taxable years begins:
    • 2012: 10% deduction of the business increment
    • 2013: 20%
    • 2014: 30%
    • 2015: 40%
    • 2016 through 2025: 50%
    • For taxable years beginning in 2026 and thereafter, the deduction is further restricted by gross income thresholds:
    • GI ≤ $500,000: 50% deduction (retained for lower-income filers)
    • GI > $500,000 and ≤ $1,000,000: 25% deduction
    • GI > $1,000,000: 0% deduction (no deduction)

  • Retroactive application and effective date

    • The act takes effect immediately and applies retroactively to taxable years beginning on or after January 1, 2026.

Who Would Be Affected

  • Taxpayers who currently utilize the ABC under the gross income tax, including individuals and entities with significant business income in the eligible categories (net profits, rents/royalties/patents/copyrights, partnership income, S corporation income).
  • Taxpayers with gross income over $500,000, and especially those above $1,000,000, would face reduced or eliminated deductions starting in 2026.
  • An estimated 10,000 taxpayers (less than 1% of all gross income tax filers) are anticipated to be affected, with incremental revenue impacts.

Financial and Fiscal Impact

  • The Department of the Treasury projects the measure will increase state revenues by approximately $120 million per year.
  • The policy aligns with Governor’s budget priorities by introducing income-based limitations on the ABC deduction.

Procedural and Timeline Notes

  • Effective date: Immediate.
  • Retroactive applicability: Taxable years beginning on or after January 1, 2026.
  • Legislative action: Introduced June 23, 2026; referred to Assembly Budget Committee.
  • Principal sponsor: Co-sponsor Gabe Rodriguez.

Practical Takeaways

  • Lower- and middle-income taxpayers (GI ≤ $500k) retain a relatively generous ABC deduction (up to 50% of the business increment starting in 2026, as historically structured).
  • Higher-income taxpayers face phased reductions:
    • 25% deduction for GI > $500k up to $1M
    • No deduction for GI > $1M
  • The reform effectively narrows eligibility and lowers the value of the ABC deduction for many high-earning taxpayers, while preserving some benefit for lower-income filers.

Compiled from official sources — confirm details with the bill’s official record.

Sign in to ask a question.