Q. If you have a pension from New York and are living in New Jersey, is the pension exclusion valid?
A. You will be subject to tax, but at least it’s not by two states.
That’s thanks to the federal government.
“Enacted in 1996, the Pension Source Act prohibits the states from taxing pension income of non-residents, even if that pension was earned in the non-resident state,” said Laurie Wolfe, a certified financial planner and certified public accountant with Lassus Wherley in New Providence. “So in your case, only New Jersey can tax your pension.”
Wolfe offered some more background on how New Jersey taxes your pension.
For the 2018 tax year in New Jersey, if you are 62 or older and make less than $100,000 per year, you can exclude up to $45,000 of pension, IRA or annuity income if you are a single person. Married and civil union couples filing jointly can exclude $60,000, and those filing separately can exclude $30,000.
The $100,000 income limitation applies regardless of filing status, Wolfe said.
“For those filing jointly, if only one spouse has reached age 62, the maximum exclusion can still be claimed, but only the income of the qualifying spouse can be excluded,” she said.
This exclusion is set to increase annually through 2020, when the maximums become $75,000 for a single individual, $100,000 for married/civil union couples filing jointly and $50,000 for those filing separately.
“If you qualify, but don’t use your entire allowed exclusion, New Jersey allows you to use the unclaimed portion against income from wages, business, partnerships and S corporations, but only if that income totals $3,000 or less,” she said. “There is also a special exclusion for taxpayers who cannot receive Social Security or Railroad Retirement benefits. This exclusion only affects very few taxpayers.”
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