Gross Income Tax Notice Clarification on Difficulty of Care Payments and Tax Exemption

Gross Income Tax Notice:   Clarification on Difficulty of Care Payments and Tax Exemption  (as provided by the NJ Division of Taxation)

Difficulty of Care payments do not fall within any of New Jersey’s defined taxable income  categories.

Prior to the release of the 2024 NJ-1040 instructions, New Jersey tax forms and guidance did
not specifically mention these payments or clarify whether they were excludable from NJ Gross
Income Tax. Due to this lack of explicit inclusion or exclusion in State tax statutes, some
taxpayers may have assumed these payments were subject to New Jersey taxation.

To address public inquiries, the New Jersey Division of Taxation has now explicitly confirmed
that Difficulty of Care payments are non-taxable for New Jersey Gross Income Tax purposes.
This clarification is officially included in the 2024 NJ-1040 Gross Income Tax Instructions.

Although this clarification appears in the 2024 tax year instructions, 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.

If a taxpayer mistakenly paid New Jersey State taxes on these payments in prior years, they may
be eligible for a refund by filing an amended New Jersey tax return. However, please note that
New Jersey law generally 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 these payments are considered non-taxable and do not count as
"earned income" for New Jersey Gross Income Tax purposes.