Taxation and Civil Unions

February 23, 2007

TRENTON—The New Jersey Department of Taxation has clarified that partners in a civil union will receive treatment equal to that of a similarly situated married couple in regard to state taxes, including the New Jersey estate tax.

Because the federal goverment refuses to recognize same-sex couples, civil union spouses and domestic partners must continue to file federal taxes as if they are single. However, wherever New Jersey tax law references federal tax exemptions or filing status, New Jersey law will be interpreted as if federal law recognized civil unions in the same way New Jersey does.

The Civil Unions Act affects the following state taxes:

Real Property Tax

Civil union couples now have available the same property tax exemptions and relief as opposite-sex married couples.

Realty Transfer Fee Exemption

Transfers of real property from one civil union spouse to the other are entirely exempt from the New Jersey Realty Transfer Fee. (Note: The transfer may be subject to the federal gift tax.)

Property Tax Relief

Property Tax Reimbursement (Senior Freeze)

The Property Tax Reimbursement Program reimburses eligible senior citizens and disabled persons for property tax increases. The amount of the reimbursement is the difference between the amount of property taxes that were due and paid in the base year (the first all the eligibility requirements were met) and the amount due and paid in the current year for which the claimant is seeking the reimbursement, provided the amount paid in the current year is greater. All the eligibility requirements for the base year and for each succeeding year, up to and including the current year, must be met to qualify for the reimbursement.  Also, the same rights that apply to a surviving spouse, apply to a surviving civil union partner.  Opposite sex couples who marry and same sex couples who enter into civil unions in 2007, will be eligible to have their joint status applicable to the reimbursement beginning 2008, assuming all other eligibility requirements are met.

Homestead Rebate

The same rules that apply to married couples apply to civil union couples.  The filing status married, filing joint return or married, filing separate return may be used only if an opposite sex couple was married on December 31 of the tax year for which the rebate is claimed. As the same rule and treatment applies to civil union couples, they may begin to apply under married/civil union status in 2008 for tax year 2007.

Disabled Veteran's Property Tax Exemption

A civil union couple, one of whom has a United States Veterans Administration certification of wartime service-connected disability, may be entitled to a 100% real property tax exemption on their principal residence. The exemption is also available to the disabled veteran's surviving civil union spouse.

Veteran's Real Property Tax Deduction

The veteran and the surviving civil union partner of a deceased veteran or serviceperson who was a citizen and resident of New Jersey at death who had active wartime service in the United States Armed Forces and who was honorably discharged or who died on active wartime duty may now also be entitled to the $250 property tax deduction.

Senior Citizen's Real Property Tax Deduction

If one, or both, spouses in a civil union are at least 65 years of age or, if under age 65, permanently and totally disabled, then they may be eligible for a $250 deduction from local property taxes. The civil union couple's combined income must not exceed $10,000. The deduction is also available the surviving spouse if the deceased spouse was otherwise eligible.

Income Tax

For purposes of state income tax, civil union spouses will be required to file as either Married/Civil Union Couple Joint or Married/Civil Union Couple Separate, even though they will be required to file their federal income tax as Single. The first year in which civil union couples will be required to file as if married is for tax year 2007 in 2008. All exemptions and deductions available under state law to married couples will be similarly available to civil union couples.

Death Taxes

Transfer Inheritance Tax

Civil union spouses and domestic partners are treated as Class 'A' Beneficiaries, which means that transfers to the surviving partner are completely exempt from the New Jersey Transfer Inheritance Tax. For civil union couples, transfers to the deceased spouse's children, stepchildren, parents, grandparents or grandchildren are also exempt.

Estate Tax

Although based upon the federal estate tax in place in 2001, civil union couples have an unlimited marital deduction for transfers to a surviving spouse. Thus, all property passing to the surviving civil spouse is exempt from the New Jersey estate tax, but not the federal estate tax.

For civil union spouses who die with a gross estate of less than $2 million (the current federal estate tax exemption), this means the estate will be entirely exempt of state and federal death taxes.

Gift Tax

New Jersey does not have a gift tax. However, federal law requires the filing of a gift tax return for all transfers in any one year in excess of $12,000 (the current annual exclusion). Civil union couples do not have an unlimited marital deduction under federal law.

More Information

The Department's full notice is located here.

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