02 Aug How will my pension be taxed, and how much?
Q. I have been looking at the legislation on the new New Jersey laws for taxing pensions. For those of us who have a portion of our pension taxed, what is the rate that it will be taxed at? Can we do anything to lower the tax burden?
— Taxed out
A. Seniors have had a lot of questions about the increased tax break for pensions.
Here’s the lowdown:
By the year 2020, certain New Jersey retirees will be able to exclude up to $100,000 of their taxable retirement income, including pensions, annuities and IRA withdrawals, from their state income, said Meg Newby, a certified public accountant with Wilkin & Guttenplan in East Brunswick.
She said the exclusion will be increased annually over the next four years.
“The exclusion will continue to be available to taxpayers who are 62 years of age or older as of the last day of the tax year, provided that the taxpayer’s gross income for the tax year before subtracting any pension exclusion does not exceed $100,000,” she said.
The amount of retirement benefits after subtracting the pension exclusion in effect for the given tax year will be taxable to the taxpayer based on the tax rate for the taxpayer’s filing status and total taxable state income for the year, Newby said.
The tax brackets range from 1.4 to 8.97 percent.
A full list of the state’s tax brackets can be found on the state’s website.
Newby said the use of available New Jersey tax deductions, such as the property tax and medical expense deductions, may prove to be effective in minimizing tax.
New Jersey allows for the deduction of the cost of medical insurance and unreimbursed medical expenses for the amount that exceeds 2 percent of the taxpayer’s New Jersey gross income, she said.
She said New Jersey also allows for the deduction of property taxes paid on the taxpayer’s principal residence, with a maximum deduction of $10,000 per year.
“For renters, it’s important to note that although real estate taxes are typically not explicitly paid for, the state still allows a deduction for property taxes paid calculated at 18 percent of the total rent paid during the year,” she said.
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This post was first published in August 2017.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.