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Division of Taxation

NJ Income Tax – Deductions

Federal deductions, such as mortgage interest, employee business expenses, and IRA and Keogh Plan contributions are not allowed on the New Jersey tax return.

Full-year residents can only deduct amounts paid during the tax year. Part-year residents can only include those amounts paid while they were New Jersey residents.

Medical Expenses
You can deduct certain medical expenses that you paid during the year for yourself, your spouse or domestic partner, and your dependents. However, you cannot deduct expenses for which you were reimbursed. Only expenses that exceed 2% of your income can be deducted. Some examples of allowable medical expenses are: payments for doctor's visits, dental care, hospital care, eye examinations, eyeglasses, medicine, and x-rays or other diagnostic services directed by your physician or dentist. Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions. You also can deduct transportation costs that are allowable on your federal return. If you deduct medical expenses in one year and are reimbursed in the next, you must include the reimbursement as income in the year you receive the payment.

Archer MSA Contributions
New Jersey follows the federal rules for deducting qualified Archer MSA contributions. Your contribution cannot be more than 75% of your annual health plan deductible (65% if you have a self-only plan). Excess contributions that you withdraw before the due date of your tax return are not taxable. However, you must report the earnings associated with the excess contributions you withdraw as wages on the "Wages, salaries, tips, and other employee compensation" line of your tax return.

Self-Employed Health Insurance Deduction
If you are considered self-employed for federal tax purposes, or you received wages in 2020 from an S corporation in which you were a more-than-2% shareholder, you can deduct the amount you paid during the year for health insurance for yourself, your spouse/civil union partner or domestic partner, and your dependents. Your deduction cannot be more than the amount of your earned income, as defined for federal tax purposes, from the business under which the insurance plan was established.

For federal purposes, you may be able to deduct amounts paid for health insurance for any child of yours who was under age 27 at the end of 2020. However, for New Jersey purposes, you can deduct these amounts only if the child was your dependent. For more information, see Technical Advisory Memorandum TAM 2011-14.

Alimony and Separate Maintenance Payments
You can deduct any court-ordered alimony or separate maintenance payments you made. Do not deduct payments for child support.

Qualified Conservation Contributions
You can deduct any contribution you made for conservation purposes of a qualified real property interest in property located in New Jersey. The deduction is the amount of the contribution allowed as a deduction in calculating your taxable income for federal purposes.

Health Enterprise Zone Deduction
If you provide primary care services in a qualified medical or dental practice you own that is located in or within five miles of a designated Health Enterprise Zone (HEZ), you may be able to deduct a percentage of the net income from that practice. Partners and S corporation shareholders of a qualified practice enter the HEZ deduction amount listed on Schedule NJK-1, Form NJ-1065, or Schedule NJ-K-1, Form CBT-100S. Sole proprietors must calculate the amount of their HEZ deduction. See Technical Bulletin TB-56 , Health Enterprise Zones, for eligibility requirements and how to calculate the HEZ deduction.

Alternative Business Calculation Adjustment
If you have losses in certain business-related categories of income, you may be able to use those losses to calculate an adjustment to your taxable income. In addition, you can carry forward unused losses in those categories for up to 20 years to calculate future adjustments. The categories of income that are included in the adjustment calculation are: net profits from business; net gains or net income from rents, royalties, patents, and copyrights; distributive share of partnership income; and net pro rata share of S corporation income. Complete Schedules NJ-BUS-1 and NJ-BUS-2 to calculate the amount of the adjustment or loss carryforward.

Property Tax Deduction/Credit
If you were a New Jersey homeowner or tenant, you may qualify for either a property tax deduction or a refundable property tax credit. More information is available on the credit/deduction.

Last Updated: Thursday, 12/31/20