Q. On the pension exclusion, it seems people qualify if they are joint filers and both retired. If one of the joint filers is still working and the combined income goes over $100,000, does that mean the retiree will not be able to exclude the pension amount? What happens if you’re married filing separately?
— Trying to understand
A. The pension exclusion is supposed to help retirees be able to afford staying in New Jersey, but not everyone will qualify.
The $100,000 income threshold is combined for joint filers even if one is under 62 and still working and the other spouse collects a pension, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.
He said this is addressed on Page 12 of Tax Topic Bulletin GIT-1 Pensions and Annuities, which says:
“Only One Spouse Qualifies for Exclusion. When you and your spouse file a joint return with a combined total income of $100,000 or less, and only one of you is 62 or older or disabled, you can still claim the maximum pension exclusion amount. However, only the pension, annuity, or IRA withdrawal of the spouse who is 62 or older or disabled can be excluded.”
While the threshold for qualifying is the same regardless of filing status, the amount of the exclusion is different for each filing status, Hook said.
For 2017, if a married couple qualifies, they can exclude up to $40,000 of that income, while a single filer can exclude $30,000, and married filing separate returns can only exclude $20,000.
“This is a good example of the marriage penalty,” Hook said. “If you and your wife were not married and each of your incomes were under $100,000, you would be able to exclude $30,000 each — a total of $60,000 — instead of $40,000 if married and qualified, or $0 if your combined income exceeded $100,000.”
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