If you’re a New Jersey LLC owner who wants to keep your LLC in good standing with the state, there are certain taxes you must file with the Department of Revenue Taxation Division.
To help you know the tax requirements your LLC must meet, we sought legal advice from our registered business accountants and attorneys, who have been in the LLC sector for over nine years.
We went through the New Jersey Department of Revenue website for precise tax information and compiled this comprehensive guide on New Jersey LLC taxes.
Quick Summary
- The New Jersey income tax rates range from 1.4% to 10.75%, while the sales tax rate is 6.625%.
- The Corporation Business Tax is 9% of the adjusted net income or the share allocated to New Jersey.
- The state tax rate is 7.5% for businesses with a total net income of $100,000 or less and 6.5% for corporations with a total net income of $50,000 or less.
How Are LLCs Taxed in New Jersey?
LLCs in New Jersey are taxed by the Internal Revenue Service (IRS) based on the number of members they have.
An LLC with one owner (single-member LLC) is taxed similarly to a sole proprietorship. An LLC with two or more owners (multi-member LLC) is taxed like a partnership.
The LLC tax structure is referred to as the "default status." They are applied automatically depending on the number of LLC members. The New Jersey Division of Taxation then recognizes this and taxes your LLC similarly at the state level.
Alternatively, you might obtain "elective status" for your LLC. This is accomplished by submitting an additional form to the IRS.
Once approved, the IRS will regard your LLC as a Corporation (either a C-Corporation or an S-Corporation) for tax purposes.
State Taxes for New Jersey LLCs
The IRS has various options for how to tax your LLC.
1. Single-Member LLCs
The IRS considers all New Jersey single-member LLCs to be disregarded entities for tax purposes.
This implies that the IRS does not anticipate the LLC filing its own federal income tax return.
Instead, the single-member LLC's owner submits the form and pays income taxes.
The ownership of the LLC determines how the LLC pays federal income taxes:
- If one individual owns the LLC, it is taxed as a sole proprietorship.
- If another firm owns the LLC, it is taxed as a division of the parent company.
2. Multi-Member LLCs
An LLC with more than one owner is known as a multi-member LLC and is taxed as a partnership by default.
Like the single-member LLC, the multi-member LLC is a pass-through entity. This means the LLC's income is passed on to the members, who must submit taxes on their profits.
The LLC must file a 1065 Partnership Return and provide the LLC owners with a Schedule K-1.
The K-1s show each owner's distributive portion of profits. Furthermore, the K-1 income "flows through" to the owners. Each owner then pays the income taxes on their personal income tax return (Form 1040).
3. LLCs Taxed as S-Corp
Your LLC can apply to be taxed as an S-Corporation by completing Form 2553 with the IRS [1].
Check the IRS S-corp standards to ensure your LLC qualifies since only US-based corporations with particular shareholder and stock restrictions can become S-corps.
"LLCs benefit from S-corporation status since S-corps do not pay the New Jersey corporation business tax and can make member distributions free from the 15.3% federal self-employment tax."
- Lauren Hansen, Business Attorney
4. LLCs Taxed as C-Corp
Although it is uncommon, some LLCs choose to be treated as C-corps, which is the default tax status for corporations.
C-corps face "double-taxation," since they pay 21% federal corporate income tax while shareholders pay dividend taxes.
However, LLCs seeking additional investment and funding opportunities benefit from a broader variety of tax savings through C-corps status than default LLCs and S-corps, and they are also more appealing to investors.
C-corps must file IRS Form 1120 to record their earnings [2].
We recommend consulting with a CPA to see whether your LLC may benefit from changing to a C-corp status.
Read more about why some LLCs filing taxes as a C Corp.
Federal Taxes for New Jersey LLCs
Your New Jersey LLC has to pay the following federal taxes.
1. Federal Self-Employment Tax
The LLC does not file its own federal return; instead, members who earn from the LLC must pay self-employment tax.
The federal self-employment tax applies to all earnings of an LLC member. In New Jersey, the federal self-employment tax rate is 15.3%. Members may deduct half of their tax payments from their taxable income.
2. Federal Income Tax
This tax, like the state income tax, applies to the earnings you generate in your LLC.
Your profits determine the federal income tax rate, the industry of your LLC, the current income tax bracket in effect, any deductions, and filing status.
Only earnings taken from the firm, allowances, and certain deductions are subject to federal income tax.
In some places, a member is required to pay tax on LLC income that exceeds a specific threshold.
Other Taxes
Your New Jersey LLC has to pay the following additional LLC business taxes:
1. New Jersey Sales Tax
If you sell items in New Jersey, you are required to collect and remit sales tax to the state.
- Register your LLC with the appropriate DOT section (either online or by mail).
- Request a certificate of permission to collect sales tax at the time of registration.
- Every month or quarter, you must file your sales tax return.
Most states do not impose sales tax on basics such as medication, clothes, petrol, or some foods. The state provides a comprehensive list of things exempt from New Jersey sales tax.
The statewide sales tax rate in New Jersey is 6.625%, and the state does not permit the collection of local sales taxes.
2. Local New Jersey Taxes
Some New Jersey cities and counties levy their own taxes on enterprises, like 1% payroll New Jersey taxes in Newark and Jersey City.
Alternatively, the state government may impose special taxes on a specific region, such as the 9% Atlantic City Luxury Tax on some beverages, room rentals, and entertainment.
You must pay any local taxes that apply to your LLC at its home location and any other counties or cities where it does business.
3. Industry Tax
The New Jersey Division of Taxation additionally levies taxes on some sectors and regulated products in the state, such as:
- Realty Transfers
- Recycling
- Sanitary Landfills
- Cannabis
- Cigarettes
- Hotel/Motel Occupancy
- Alcoholic Beverages
- Tobacco and Vapor Products
4. New Jersey Use Tax
If you buy physical goods outside of the state for use in New Jersey, you may be required to pay use tax.
For example, if you purchase equipment for your New Jersey business from a firm in a state that either does not have a sales tax or has a lower sales tax compared to New Jersey, you must pay the New Jersey use tax.
The current use tax rate in New Jersey is 6.625%, which is paid directly to the Division of Taxation.
New Jersey State Employer Taxes
Employers in New Jersey are required to pay workers' compensation and unemployment insurance taxes:
Workers Compensation
New Jersey employers must acquire workers' compensation insurance for all employees.
Rates vary depending on claim history and the risk inherent in the work your workers conduct, but the estimated average rate in New Jersey is $1.45 per $100 of payroll.
Unemployment Insurance (UI) Tax
Employers are taxed up to a $41,100 base pay for each employee (wages over that level are not taxed).
The unemployment tax rate is now 2.8% for the first 3 years an employer is subject to the law.
Every year, the New Jersey Department of Labor and Workforce Development—Division of Employer Accounts will present the employer with a rate ranging from 0.6% to 6.4%.
The rate is determined by the amount of unemployment taxes paid by (and benefits levied to) the employer, plus their average taxable payroll.
What Is Tax-Deductible for an LLC in New Jersey?
The tax-deductible for an LLC in New Jersey includes deductions for alimony, medical, and self-employed health insurance expenses.
In addition, the state provides tax credits like the earned corporation income tax credit and the child and dependent care credit.
FAQs
What Is the Minimum Tax for an LLC in NJ?
The minimum tax for an LLC in NJ is $150. However, if the IRS classifies your LLC as an S corporation, you must pay the $375 minimum tax.
What Is the Tax Rate in New Jersey?
The tax rate in New Jersey is 6.625%, which covers the state's sales tax rate. However, there are some exceptions and variations, so it’s always a good idea to consult with a tax advisor.
Do You Need Help Filing Your NJ LLC Taxes?
As a New Jersey LLC owner, you must be cautious when dealing with the IRS and the state regarding your LLC taxes.
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