State tax collections have sagged during the ongoing coronavirus pandemic, but income-tax payments, including all of those due on Wednesday, could bring the state budget a much-needed boost.
The income tax is the largest single source of revenue for the budget, and collecting a big haul at the payment deadline usually means the difference between staying on target or a shortfall that has to be filled in with cuts.
This year, New Jersey tax collections have fallen off pace almost across the board as the health crisis has gripped the state for the last several months.
But income-tax payments that were originally due on April 15 and will now being collected on July 15 will largely reflect economic activity that occurred last year, when unemployment hit record lows and the economy was still firing on all cylinders.
That means the tax deadline has some potential to provide a boost, or at least a bit of better news, for a state that has been struggling to plug a series of big financial holes. In recent weeks, lawmakers have had to freeze spending on things like property-tax relief for seniors and dozens of other programs to continue to meet the state Constitution’s balanced-budget requirement.
Hoping for a windfall
Whether the income-tax payments and some other delayed revenues due later this week can produce a big enough windfall to undo some of the budget cuts remains to be seen.
In a normal year, New Jersey could expect to collect well over $15 billion from the state income tax, accounting for a big portion of overall spending that totals near $40 billion annually. Income-tax payments, typically collected in mid-April, can produce a huge bounty, as they did last year when officials estimated at least $3 billion was sent to Trenton just by the taxpayers who were settling up for the year before the deadline.
But this year, after the payment deadline was extended by three months in response to the pandemic, April tax collections came in well off the previous year’s mark. In all, the Department of Treasury measured a 60% drop year-over-year in April 2020.
However, the budget has remained in balance as about $1 billion in spending had been put in reserve by Treasury officials at the onset of the pandemic. Lawmakers also authorized a three-month extension of the state fiscal year that delayed the typical closeout, from June 30 to September 30, providing some additional breathing room.
Updated figures provided by Treasury on Friday indicated just over 4 million returns for tax year 2019 had been processed as of the middle of last week. Last year, Treasury processed 4.8 million returns for tax year 2018. More than 2.5 million refunds had also been issued as of last week, and last year Treasury issued 2.98 million refunds, officials said.
Pre-pandemic revenue forecasts
Before the pandemic hit the state, tax collections were outpacing projections and Treasury officials had been upgrading revenue forecasts, citing, among other factors, the strength of the state’s economy last year.
“The unemployment rate averaged 3.6 percent over the course of 2019, the lowest annual unemployment rate on record,” Treasury officials noted in budget documents released in February.
The ongoing strength of financial markets last year also generated an uptick in profits and bonuses for Wall Street, according to figures tracked by New York’s Office of the State Comptroller. That’s usually an indicator that New Jersey’s highest earners — who deliver a disproportionate share of the state income tax — also had a good 2019.
Still, Treasury officials have issued warnings in recent weeks that at least some taxpayers may have a hard time making their final payments this year as their own finances have been strained during the pandemic. There are also concerns that at least some taxpayers may file for additional payment delays that would push their final payments into October.
Meanwhile, as part of an ongoing social-media campaign, Treasury officials have been issuing reminders that corporate-business tax payments, originally due in mid-April, must be paid this week as part of the same law that extended the deadline for income taxes.