Key Takeaways
- New Jersey limits net operating loss (NOL) deductions to $1 million through 2030 while restoring immediate research and experimental (R&E) expensing under federal tax conformity.
- New Jersey updates individual income tax rules with business loss limits, a larger child tax credit and lower income thresholds for Stay NJ property tax relief.
- Pennsylvania’s fiscal year 2026-27 budget makes no tax changes. Existing corporate tax rate reductions and individual tax incentives remain part of state tax planning.
New Jersey’s fiscal year 2026-27 budget introduces several significant tax changes that could affect business tax planning, research and development investments, net operating loss utilization and individual tax liabilities. Pennsylvania’s budget largely maintains the current tax landscape, but businesses should continue to monitor existing tax rate reductions and incentives as part of their overall state tax strategy.
Overview of the Key Tax Changes
Governor Mikie Sherrill signed New Jersey’s fiscal year 2026-27 budget bill (Bill) on June 30, 2026. Governor Josh Shapiro signed Pennsylvania’s fiscal year 2026-27 budget bill on July 13, 2026.
The key changes for each are detailed below.
New Jersey
Corporate Tax
Effective for tax years ending on or after July 31, 2026, and ending on or before July 31, 2030, the net operating loss deduction (NOL) is capped at $1 million. Moreover, to the extent that this cap limits the NOL, six years is added to the remaining 20-year carryover period. Lastly, for estimated tax payments due during 2026, if this limitation applies, no interest or penalty will be imposed on any understated estimate.
IRC Conformity
- Since the Bill does not contain any OBBBA (One Big Beautiful Bill Act) decoupling provisions, New Jersey will follow all of the Internal Revenue Code (IRC) 174A rules which restored the full, immediate expensing of domestic research and experimental (R&E) expenditures in the year incurred. In contrast, New York State and City decoupled from OBBBA’s reinstatement of 100% special “bonus” depreciation by limiting taxpayers to the standard depreciation deductions for property, as computed under IRC Section 167 and in place prior to OBBBA.
- New Jersey will also follow the amended Section 163(j) rules so that the deductions for depreciation, amortization or depletion will not be included when calculating Adjusted Taxable Income.
Personal Income Tax
- Effective tax year 2026, individuals with gross income greater than $500,000 will be allowed a loss carryover of up to 25% of business income. No loss carryover will be allowed if gross income is greater than $1 million.
- For tax years 2026 through 2028, there is an across-the-board 25% increase in the child tax credit. For example, for taxpayers whose income is less than $30,000, this credit is increased from $1,000 to $1,250.
- Effective July 1, 2026, the Stay NJ property relief program which provides property tax rebates has been changed such that it now applies to seniors whose taxable income is less than $200,000. It previously applied to seniors whose income was less than $500,000.
Miscellaneous Changes
- Effective July 1, 2026, employers with 50 or more employees must pay a $325–$725 fee for each employee covered by the state’s Medicaid program.
- Effective July 1, 2026, the data center tax credit program has been eliminated.
Pennsylvania
The budget bill contained no tax changes. However, the previously enacted corporate tax rate reduction as well as prior individual tax credits are continued.
Contact Us
If you have questions related to these changes or need assistance with state tax issues generally, contact your client service team or:
Steven J. Eller, CPA, JD
Partner
seller@pkfod.com | 551.249.1836
Nicholas Rochedieu, JD
Partner
nrochedieu@pkfod.com | 203.705.4135
Denisse Moderski, CPA
Partner
dmoderski@pkfod.com | 646.699.2858