Construction Contractor Payroll Tax Withholdings

Effective January 1, 2007, P.L. 2006, c. 85 requires New Jersey businesses to withhold 7 percent from payments to construction contractors who are unincorporated and not registered with the New Jersey Division of Revenue, and to forward withholdings monthly to the Division of Taxation. Under this act, the business owner is also made liable for a contractor’s withholding of subcontractor or lower-tier subcontractor payments, unless the business owner obtains a copy of their unincorporated general contractor’s business registration form (see “Proof of Registration” below).

—Definitions—

Construction Contractor: a contractor who “constructs, improves, alters or repairs a building, structure or improvement to real property.” Home improvement contractors are only considered construction contractors when working for businesses.

Unincorporated Construction Contractor: a construction contractor organized as a sole proprietor, partnership, individual or any business type not taxable as a corporation for federal tax purposes.

—Proof of Registration—

Proof of Registration with the Division of Revenue: possession of a New Jersey Business Registration Certificate. Businesses already registered can download a copy of the certificate at https://www1.state.nj.us/TYTR_BRC/jsp/BRCLoginJsp.jsp.  Non-registered businesses can apply for registration at https://www.njportal.com/DOR/BusinessRegistration/ or by calling 609-292-9292.

—Enforcement—

Failure to file a withholdings return to the Division of Taxation by the due date (15th day following the end of the month) and/or failure to remit payments due will subject businesses to late filing penalties (5 percent per month on the balance due, not to exceed 25 percent of total balance, and a late payment penalty of 5 percent) and interest charges (3 percent above prime rate assessed on balance due including interest and late payment penalties.)

—For More Information—

Visit the Division of Taxation’s Web site for detailed guidance:

http://www.state.nj.us/treasury/taxation/noticegit.shtml

If you need additional information, please contact Andrew Musick at 609-393-7707, ext. 9512, or via e- mail at amusick@njbia.org.