As the New Jersey Gross Income Tax rate has increased from 6.370% to 8.970% for all taxpayers with gross income over $500,000 effective immediately and retroactive to January 1, 2004, the Division has received numerous requests regarding whether taxpayers will be charged penalty and interest for underestimating Gross Income Tax in the first two installment periods of 2004.
Taxpayers, who have already paid estimated New Jersey Gross Income Tax for the first two quarters of 2004 at the 6.370% rate, may avoid interest charges on the amount of underpayment by meeting one of the safe harbor exceptions provided in N.J.S.A. 54A: 9-6.
The safe harbor provision at N.J.S.A. 54A: 9-6(d)1(A) applies where the taxpayer has paid 100% of the prior year’s income tax liability by the due date of the fourth installment payment and the prior year’s income tax return covered the full taxable year.
Therefore, taxpayers will not be subject to penalty and interest charges for underestimating New Jersey Gross Income Tax for 2004 if they have paid 100% of the prior year’s Gross Income Tax liability by January 15, 2005. Additionally, to avoid penalty and interest charges, each of the four estimated payments for 2004 must at least equal 25% of the 2003 Gross Income Tax liability.
Fiscal year taxpayers must also make corresponding adjustments.