Q. How can I find out how new gas tax in New Jersey will impact my state pension? I understand that state tax will be reduced. Is this true?
A. It’s true.
The bill that gave New Jersey a 23-cent gas tax increase also had other provisions that count as tax benefits for New Jerseyans.
One benefit is that the state’s sales tax will decline from 7 percent to 6.975 percent in 2017, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette. The tax will be lowered further to 6.625 percent for 2018 and beyond.
The second tax break is the one you’re talking about, and it affects New Jersey retirees.
Maye said the New Jersey pension exclusion, which includes pensions, annuities and IRA withdrawals, will increase for married couples from the current level of $20,000 to $40,000 in 2017. The exclusion will reach $100,000 by the year 2020, in essence, increasing $20,000 a year until 2020 for married couples.
But what didn’t change are the rules to qualify for the pension exclusion.
“You need to be 62 years of age or older on the last day of the tax year and have gross income less than $100,000 before subtracting the pension income exclusion,” Maye said. “As a side note New Jersey excludes Social Security from gross income and therefore Social Security would not be part of the $100,000 gross income calculation.”
Another benefit of the new tax bill is that the state’s estate tax exemption is raised from current level of $675,000 to $2 million in 2017, and in 2018 the state’s estate tax is repealed.
But, Maye said, it should be noted that the New Jersey inheritance tax was not repealed, meaning whether you owe money to New Jersey at your death will depend on who is inheriting your money.
“For example if a surviving spouse left everything to her children there would be no inheritance tax,” Maye said. “However, if the surviving spouse never had children and left the money to nieces and nephews there would be an inheritance tax.”
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