The New Jersey pass-through entity tax took effect Jan. 1, 2020. This new law allows pass-through businesses to pay income taxes at the entity level instead of the personal level. The New Jersey Business Alternative Income Tax — also referred to as BAIT or NJ BAIT — helps business owners mitigate the negative impact of the federal state and local tax (SALT) deduction cap. It’s estimated to save New Jersey business owners $200 to $400 million annually.
Taxpayers who earn income from pass-through businesses and pay the BAIT can obtain a refundable gross income tax credit. There is no limit on the deduction of state taxes paid at the entity level under the federal Tax Cuts and Jobs Act (TCJA), only at the individual income level. Currently, pass-through business owners can only deduct up to $10,000 in state and local taxes on their personal income taxes.