Since tax year 2022, New Jersey has offered three state income tax deductions for college costs, according to the NJ Division of Taxation. Here is what each one covers, who qualifies, and the question married couples ask most.
First, the income test
Per the NJ Division of Taxation's College Affordability deductions page (updated March 19, 2026), all three deductions are available only to filers with gross income of $200,000 or less, for tax year 2022 and forward. The 2025 NJ-1040 instructions add that part-year residents must use their income for the entire year when determining eligibility. The Division describes this as an eligibility test, not a phase-out, so it is worth knowing early in the year which side of the line your household is likely to land on.
1. The NJ 529 deduction (NJBEST contributions)
Per the NJ Division of Taxation (tax year 2022 and forward), you can deduct up to $10,000 of contributions made during the year to an NJBEST account — New Jersey's 529 college savings plan. The Division's own example: contributing $1,000 a month starting in January reaches the $10,000 maximum for that year.
Two details parents miss:
- The deduction is described for contributions to NJBEST specifically. If you save in another state's 529 plan, don't assume the New Jersey deduction applies — check with your tax professional before you choose a plan.
- It's based on contributions made during the year, so timing matters. A contribution made in January counts toward that year, not the prior one.
The 2025 NJ-1040 instructions also list qualified distributions from NJBEST accounts as income that is exempt from New Jersey tax.
2. The NJCLASS deduction
Per the NJ Division of Taxation (tax year 2022 and forward), you can deduct up to $2,500 of principal and interest paid during the year on NJCLASS loans — New Jersey's state student loan program run by HESAA. Note the wording: it covers principal and interest, not interest alone. Federal student loans and private bank loans are not NJCLASS loans. For how NJCLASS works as a loan, see our guide to college planning and financial aid in NJ.
3. The NJ tuition deduction
Per the 2025 NJ-1040 instructions, if you, your spouse, or your dependent enroll in or attend a New Jersey institution of higher education, you can deduct up to $10,000 for tuition costs paid during the year. The deduction is tied to New Jersey institutions, so tuition paid to an out-of-state college doesn't fit that description.
Married filing jointly: is it $20,000?
This is the most common question we hear about the NJ 529 deduction. The 2025 NJ-1040 instructions state each deduction as a single maximum on the return (for example, "up to $10,000" of NJBEST contributions), and they add that if spouses file separate returns, "the combined deduction amounts cannot exceed" those same amounts. In plain English: filing jointly does not double the cap, and splitting into two separate returns does not double it either. How the $200,000 gross income test applies to your filing status is a question to confirm with your tax professional before you file.
Where the deductions go on the return
On the 2025 Form NJ-1040, the instructions place these deductions on line 37a (NJBEST), line 37b (NJCLASS) and line 37c (tuition).
How these fit into a bigger plan
These deductions are useful, but they are rarely the largest number in a family's college picture. The bigger levers are usually how your income and business show up in financial aid formulas and how the colleges on your list discount their price. That is why we look at tax, aid, and insurance together — see our LLC and tax strategy service and 529 vs. LLC: which helps more? and the FAFSA base year, explained.
This page is general information, not tax advice. Talk to your tax professional about your own return.