The New Jersey Division of Taxation has issued a revised statement regarding the taxability of Difficulty of Care payments, providing clearer guidance for taxpayers. This clarification is crucial as many caregivers who provide essential services to individuals with disabilities or chronic illnesses depend on these payments as part of their livelihood, and understanding the tax implications ensures they do not overpay on their taxes or miss out on potential refunds.
Clarification on Taxability and Income Reporting
Previously, there was uncertainty about whether these payments should be included as taxable income; the Division now confirms that taxpayers should not include Difficulty of Care payments in any taxable income category on their New Jersey Gross Income Tax Return, even if the payments are reported on a W-2 or 1099 form. To clarify the exclusion, taxpayers may attach an explanation to their return. Additionally, the New Jersey Earned Income Tax Credit (NJ EITC) does not apply to Difficulty of Care payments. Since these payments are deemed non-taxable, they do not qualify as earned income for New Jersey Gross Income Tax purposes.
Refund Opportunities for Previously Paid Taxes
For taxpayers who mistakenly included these payments as taxable income and paid New Jersey State taxes in previous years, there may be an opportunity to claim a refund. Amended New Jersey tax returns can be filed to request a refund of any overpaid taxes. However, taxpayers should be aware of the time limitations for filing an amended return. New Jersey law generally allows either three years from the original filing date or two years from the time the tax was paid, whichever is later, to submit an amended return and claim a refund.
Ensuring Compliance with New Jersey Tax Laws
This revision provides welcome relief to many taxpayers, ensuring that Difficulty of Care payments are properly classified as non-taxable income under New Jersey tax law. Understanding these changes can help an individual make informed financial decisions while potentially recovering funds one was not required to pay.
As these tax laws continue to evolve, staying informed is essential.
For more information on filing an amended return, you can reach Martin D. Hauptman at mhauptman@mblawfirm.com or at 973-243-7912.