Adding up pension exclusion income

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Q. I understand that for New Jersey, any pension exclusion is only possible if gross income does not exceed $100,000. I have both Social Security income as well as interest income from redemption of U.S. Savings Bonds. What counts as income?
— Getting ready for taxes

A. Lots of taxpayers have been unsure of how the pension exclusion works. Here’s what you need to know.

The retirement and pension income tax exclusion is only available to taxpayers with $100,000 or less in gross income, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

“That benefit is only available to taxpayers 62 years of age or older or those who, because of a disability, are eligible for Social Security benefits,” he said.

There exclusion comes in phases.

For a married couple filing jointly, the level at which income taxes are excluded rose from $20,000 to $40,000 after Jan. 1, 2017, and then to $60,000 after Jan. 1, 2018. It rises to $80,000 after Jan. 1, 2019; and to $100,000 after Jan. 1, 2020.

For those married filing separately, the exclusion increased from $10,000 to $20,000 after Jan. 1, 2017, and it goes to $30,000 after Jan. 1, 2018. After Jan. 1, 2019 it will be $40,000, and then $50,000 after Jan. 1, 2020.

Single taxpayers saw the exclusion rise from $15,000 to $30,000 after Jan. 1, 2017 to $45,000 after Jan. 1, 2018. It will be $60,000 after Jan. 1, 2019 and $75,000 after Jan. 1, 2020.

Taxpayers qualify for the exclusion if they’re age 62 or older, or disabled as defined under Social Security guidelines at the end of the year, and their total income for the entire year is $100,000 or less, Gobo said.

He said the income considered for the pension exclusion includes all taxable New Jersey income including taxable pension and retirement income. Specifically, it includes wages, taxable interest, dividends, net profits from business, net gains from the disposition of property and pensions, annuities and IRA withdrawals. It also includes partnership income, S-Corporation income, net income from rents, royalties, patents and copyrights, net gambling winnings, alimony and any other income subject to New Jersey tax.

“Note that New Jersey total income for the $100,000 income limit for New Jersey pension exclusion purposes does not include any Social Security income you receive,” Gobo said.

It also doesn’t include tax-exempt interest from interest from obligations of the State of New Jersey or any of its political subdivisions, or interest from direct federal obligations such as U.S. Savings Bonds and U.S. Treasury Bills, Bonds, and Notes.

“Therefore, the answer to your question is you do not include Social Security or interest from U.S. Savings Bonds in determining the $100,000 Income Limit for New Jersey Pension Exclusion eligibility.

Email your questions to moc.p1606479797leHye1606479797noMJN1606479797@ksA1606479797.

This post was first published in January 2018. 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.