New Jersey Expands Benefits for Early-Stage Tech Investors

Summary: New Jersey expands benefits to investors in early-state technology companies through recent legislation that increases the base credit percentage for its Angel Tax Credit (ATC) and incorporates into state law the qualified small business stock (QSBS) exclusion under Internal Revenue Code section 1202.

On June 30, 2025, New Jersey Governor Phil Murphy signed two bills into law, expanding potential tax benefits for investors in early-stage technology companies. These benefits will take effective on January 1, 2026, and include:

• S3189 – Increases the base credit percentage under the state’s ATC
• A4455 – Incorporates the capital gain exclusion provisions from the sale of QSBS under Internal Revenue Code (IRC) § 1202

These changes are described in more detail below.

Enhanced Angel Tax Credit

Currently, New Jersey’s ATC offers individuals and corporations a refundable credit against their tax liability for qualifying investments in New Jersey emerging technology businesses.[1] The base credit equals 20% of the qualified investment, with an additional 5% credit (totaling 25%) available for qualified investments in companies located in designated opportunity zones or low-income areas. The maximum credit per investment is $500,000, with an annual program credit cap of $35 million. An application for the credit must be submitted within six months of the investment date, along with a non-refundable application fee paid by the investor. Both the investor and the company must complete their respective sections of the application. 

A “New Jersey emerging technology business” means a company that meets all of the following criteria:

• Employs fewer than 225 full-time employees, at least 75% of which are located in New Jersey
• Conducts business, employs or owns capital or property, or maintains an office in New Jersey
• Engages in one or more of the following activities in New Jersey:
  • Conducts research and has paid or incurred qualified research expenses;
  • Conducts pilot scale manufacturing; or
  • Conducts technology commercialization in the fields of advanced computing, advanced materials, biotechnology, carbon footprint reduction technology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology, or renewable energy technology.

The credit is administered by the New Jersey Economic Development Authority, and more information about the program can be found at the Authority’s website.

Pursuant to the legislation, the following changes were made to the ATC and are effective on January 1, 2026:

• Increases the base credit from 20% to 35%, with a potential total credit of 40% when combined with the additional 5% qualification.
• Lowers the total headcount for a “New Jersey emerging technology business from “fewer than 225” to “fewer than 150.”
• Lowers the annual program credit cap from $35 million to $25 million.

While the latter two changes limit the application of the ATC, the increase in the base credit amount will offer greater benefits to investors, aiming to encourage investments and growth of emerging technology businesses in New Jersey. 

Investors should take note that with the increased benefits and lower program cap, applications should be submitted as soon as possible. However, if an application is submitted after the annual cap is reached, it will be considered on the first day of the next calendar year.

Qualified Small Business Stock Exclusion

The QSBS exclusion under Section 1202 of the IRC acts as an incentive by potentially enabling shareholders to avoid paying federal taxes on capital gains from the sale of qualifying stock. Currently, this exclusion amount may be as high as $10 million.

Previously, New Jersey, along with a few other states like California, did not conform to the QSBS exclusion. However, with the legislation, New Jersey will now incorporate the QSBS exclusion, including the changes introduced by the One Big Beautiful Bill (OBBB), into its tax laws effective on January 1, 2026.

For more information, please read Aprio’s article about the QSBS exclusion and its requirements, as well our article explaining the beneficial changes made to the QSBS exclusion under the OBBB, including an increase in the maximum exclusion amount to $15 million (or more).

 [1]See N.J. Rev. Stat. § 54:10A-5.28 et seq.