Important Notice Regarding a Requirement to Withhold New Jersey Income Tax on Unincorporated Contractors and Subcontractors
Beginning January 1, 2007, New Jersey law requires project owners and contractors to withhold New Jersey income tax from payments they make to any unincorporated construction contractor or subcontractor doing business in New Jersey, unless the unincorporated contractor or subcontractor supplies proof of registration with the New Jersey Division of Revenue. Homeowners, tenants, and government entities are not required to withhold. The rate of withholding is 7%.
The new law applies to both resident and non-resident contractors and subcontractors that are constructing, improving, altering, or repairing a building, structure, or improvement to real property in New Jersey. The withholding requirement does not apply to payments for professional services such as architectural or legal services.
Under the new law, the project owner can be held liable for the contractor's withholding from a subcontractor, and for a subcontractor’s withholding from lower tier subcontractors on the project. Accordingly, you can expect project owners and general contractors will ask for proofs of incorporation and of New Jersey registration for unincorporated contractors and subcontractors. A current federal form W-9 completed by the contractor or subcontractor will provide evidence of incorporation. A copy of the New Jersey Business Registration Certificate is proof that an unincorporated business is registered with New Jersey. We recommend that you obtain these documents from your contractor and subcontractors as soon as possible.
The following paragraph may assist you in requesting proof of the contractors’ or subcontractor's incorporation and/or registration with the State of New Jersey.
"The State of New Jersey now requires us to withhold a 7% New Jersey Income Tax on payments we make to any unincorporated, unregistered construction contractor or subcontractor unless we have proof that the unincorporated contractor or subcontractor is registered with the New Jersey Division of Revenue. Please provide us evidence of your corporate status by completing and returning the enclosed form W-9 to us as soon as possible. If you are unincorporated also provide a copy your New Jersey Business Registration Certificate. You must also provide the same evidence for any subcontractor you have engaged to work on contracts you may have with us.”
