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New College Tax Breaks For NJ Residents

Feb 26 2023/ By Michael Gaer CFP, EA

New Jersey Deductions for Higher Education Expenses and Savings


Beginning in the 2022 Tax Year, the New Jersey College Affordability Act allows three Income Tax deductions for New Jersey taxpayers with gross income of $200,000 or less. These deductions include contributions to NJBEST (The NJ 529 Plan), tuition costs for New Jersey colleges and universities, and payments made for a NJCLASS loan.


Contributions to NJ 529 College Savings Plan -NJ BEST Program

  • Taxpayers with gross income of $200,000 or less can now contribute to a NJ 529 plan under the NJ BEST program and receive up to a $10,000 deduction.

  • The state income tax deduction is allowed to any taxpayer who contributes to a NJBEST 529 plan. Parents, grandparents, other family members and friends can make the tax-deductible contribution for the benefit of an account beneficiary.

  • Taxpayers will need to consider the fees associated with a NJ 529 plan. Prior to 2021, Morningstar had ranked NJBEST among the worst 529 plans in the nation because of high fees and few incentives. In 2021, Morningstar has upgraded their rating from negative to neutral due to the newly introduced deduction incentive.


One-time Grant

  • New Jersey will make a dollar-for-dollar matching grant, up to $750, on the initial deposit when opening a NJBEST account on or after June 29, 2021. The matching grant is limited to no more than one account per beneficiary.


   Tax-free Scholarship

  • Students who have a NJBEST account and go to college in New Jersey can receive a tax-free scholarship. Effective June 7, 2021, the maximum NJBEST scholarship amount was increased to a total of $3,000. The amount of scholarship awarded depends on the history of the account. Students are eligible for the scholarships if their NJBEST 529 account has been open for at least four years and has had contributions of at least $1,200. The amount of the one-time scholarship starts at $1,000 and increases to a maximum of $3,000 based on how long the account has been open and the amount of contributions. The scholarship can only be used for college.


Deduction for In-State Higher Education Tuition Costs

  • Beginning in 2022, households with gross income of $200,000 or less shall be allowed a NJ state tax deduction, not to exceed $10,000, from the taxpayer’s NJ state gross income for tuition costs paid to an in-State institution of higher education during the taxable year. No deduction is allowed for tuition costs paid to an out-of-state institution of higher education. The deduction is allowed for tuition costs related to enrollment or attendance of the taxpayer, spouse or dependent of the taxpayer at the institution.


New Jersey College Loans to Assist State Students Loan Program (NJCLASS)

  • A taxpayer with gross income of $200,000 or less shall be allowed a deduction, not to exceed $2,500, from the taxpayer’s NJ gross income in the amount of principal and interest payments paid on student loan under the NJ College Loans to Assist State Students Loan Programs.

Expand the Garden State Guarantee. 

  • This would cover the tuition for years three and four of enrollment at any of the state’s public four-year universities for students with household incomes of less than $65,000. It would also guarantee tuition discounts that would phase out on a sliding scale for students with incomes between $65,000 and a higher income threshold that would be defined by the institutions themselves.

Most CPAs will not be familiar with these tax breaks. You must be an expert in college finances to navigate these deductions. As with any and all tax deductions, nothing is simple; there are income limits and phase-outs, and you must understand the ins and outs not only to maximize them but also to avoid any no-no’s with the IRS.

If you have any questions or would like a College Financial Planning expert to assist with your taxes, or for that matter, any college financial planning issue, feel free to contact us at the link below.

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