The New Jersey Division of Taxation has clarified that Difficulty of Care payments are not subject to the state's Gross Income Tax. This clarification is now included in the 2024 NJ-1040 Gross Income Tax Instructions.
Previously, New Jersey tax forms and guidance did not specifically address whether these payments were taxable, leading some taxpayers to assume they were. The division's recent statement aims to resolve public inquiries by confirming the non-taxable status of these payments for state income tax purposes.
"This clarification first appears in the 2024 tax year instructions," a spokesperson said, "but it does not represent a change in policy—these payments have been recognized as non-taxable since the 2014 tax year, as long as they were excluded from federal taxable income under the same conditions."
Taxpayers who mistakenly paid state taxes on these payments may be eligible for refunds by filing amended returns. However, New Jersey law typically allows only three years from the original filing date to amend returns and claim refunds.
Additionally, the New Jersey Earned Income Tax Credit (NJ EITC) does not apply to Difficulty of Care payments because they are considered non-taxable and do not count as "earned income" for state tax purposes.
