Does tax break have marriage penalty?

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Q. Does the retiree tax break have a marriage penalty? My wife and I are in our early 60s, retired and we both collect a modest pension and Social Security. The new state retirement income exclusion is now $40,000 and will increase each year until it’s $100,000 in 2020. The law limits this benefit to those with less than $100,000 of income. Because our combined pension and Social Security exceeds $100,000, does that mean we’re not eligible? And because neither of us has $100,000 income by ourselves, isn’t that a marriage penalty?
— Wanting what’s fair

A. You’ve got a good point, but despite what you think, you may be eligible for the exclusion.

First, you meet the age requirement, which is to be 62 by the end of the calendar year, said Susan Klimcsak, a certified public accountant and senior tax manager with Wilkin & Guttenplan in East Brunswick.

She said the income threshold is $100,000 before the pension exclusion.

The good news?

“Social Security is not income for New Jersey so this may help to keep you below the threshold,” Klimcsak said.

If your New Jersey income from all sources is $100,000 or more, you are precluded from claiming the pension exclusion, and the income threshold prior to the increase in the pension exclusion remains unchanged.

“The income threshold has been and continues to be $100,000 for all filing statuses, creating the `marriage penalty,'” she said. “Additionally, for 2017 a married couple only receives an exclusion of up to $40,000 compared to a single taxpayer who receives $30,000 — adding to the marriage penalty.”

We hope you qualify when you consider that Social Security doesn’t count in the calculation.

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This post was originally published in September 2017. 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.