15 Dec Retirees and NJ income tax changes

Q. On my 2015 taxes, line 27b allowed “Other Retirement Income Exclusion,” letting one claim any unused portion of the pension exclusion, assuming certain requirements were met. One of these is a limit of $3,000 on wages and certain other income of a business nature (NJ Residential Return NJ-1040 for 2015, page 26). Has this low limit been raised, or is it still the same going forward?
— Taxed enough

A. Here’s the scoop.

New Jersey allows taxpayers two retirement income exclusions to reduce their state income taxes, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

“Current law allows taxpayers, age 62 or older or disabled, whose total income is $100,000 or less to exclude retirement income distributions from pensions, IRAs or 401(k) plans up to $15,000 for single filers and $20,000 for married taxpayers,” Hook said.

The amount that can be excluded has recently been increased, beginning in 2017, where by 2020, single filers can exclude up to $75,000 and married taxpayers can exclude up to $100,000 of retirement income, Hook said.

There is a second retirement income exclusion, which is the one you are referring to, Hook said.

This allows taxpayers who did not use the total allowable exclusion amount you described to increase their retirement income exclusion. They can make the increase up to the maximum amount if they meet the requirements for taking the retirement exclusion mentioned above, plus in addition their income from wages, self employment earnings, distributive share of partnerships is $3,000 or less, he said.

Hook offered this example: A single taxpayer, age 63, with $40,000 of taxable income consisting of $3,000 of wages, $10,000 of pension income, and $27,000 of dividend income would be able to take the full retirement income exclusion as follows:

— The initial retirement income exclusion of $10,000 (Line 27a)
— Additional retirement income exclusion of $5,000 (Line 27b) since the earnings were $3,000 and the total income was $100,000 or less.

“The $3,000 wage limit has not been raised going forward as part of the new law,” Hook said.

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This post was first published in December 2016.