Does the State of New Jersey have safe harbor rules?

[BulldogTom]

This is Patty, Tom is out of town on business. We have a new client to us this year that has K-1 from New Jersey. The K-1 was not received until late Sept. we filed an extension with the IRS and then filed the returns when K-1 were received. The client owed $36 of tax to New Jersey, last year no New Jersey return was filed as the K-1 property only earned $66, therefore no tax due. Now the client received a letter adding a late penalty and interest.

 

[jklcpa]

Hi Patty,

NJ has the safe harbor for underpayment of estimates, if that is what you were asking. Same rules as fed: pay 100% of prior (110% if AGI over 150K) or 80% of current year. Threshold to require estimates starts at having a tax liability of $400, at least that was what it was in prior years.

The above is most likely NOT why your client was assessed P&I though. Below are reasons why this would happen:

• NJ will allow use of the Fed extension to extend NJ if no tax is due or if at least 80% of the tax liability is paid in by the April due date.  If additional tax is owed above that, a NJ extension should include the payment. If enough isn't paid to reach 80% of tax liability (via w/h, ests or extension), the state can disallow the extension altogether as if it was never filed.
• Even if the NJ extension is acceptable to the state, NJ WILL charge P&I on ANY balance due paid after the original (not extended) due date in April.   The extension form itself states this.  If you want to see all of the instructions this came from and don't like the link, just google NJ-630 and look for the pdf one from www.state.nj.us/treasury/taxation:

 

NJ is at least charging your client the late payment penalty and interest. I'm curious, if your client paid nothing with the 2017 extension or relied on the federal extension since NJs liability in 2016 was zero, is the state also charging the late filing penalties as if the return wasn't on extension?

[jklcpa]

I wanted to add, because I'm not sure why you asked about the safe harbor and mentioned 2016 where no tax was due and no return was filed -

While it's true that "zero" prior year tax would generally allow an individual to use that figure for the Federal safe harbor method to avoid the underpayment penalty for not paying estimates, somewhere from the dark recesses of my memory tells me that a return must also have been filed for that prior year, otherwise the agency has no way to know if "zero" is correct or not.

Anyway, I didn't go digging deeper into NJ law since I don't think this is why your client was charged the P&I anyway. Again, I think it's a balance due issue after the original due date in April.

[BulldogTom]

Thanks for helping out my wife Judy.   Appreciate you very much.   I was at a software conference and did not have the time or access to do the research for Patty.  I told her if she posted here she would get some help.

Tom
Modesto, CA

[Catherine]

Judy is the best!