15 May What income is taxable in N.J.?

Q. Can you clarify which income is taxable in New Jersey and which isn’t? I’m asking to see if we would qualify for the pension exemption. We have $8,000 in pension income, $44,000 from Social Security, $10,000 from dividends and interest, a $50,000 capital gain and $90,000 in Required Minimum Distributions (RMDs).
— Trying to qualify

A. The pension exemption would be nice, right? The problem is that if you have too much income, you’re not eligible.

Your questions about what’s taxable in New Jersey probably come from seeing that your New Jersey income tax return doesn’t follow the federal return in terms of what is taxable and what isn’t, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.

She said Social Security benefits are specifically exempt from New Jersey state taxation, while up to 85 percent of said benefits may be taxable on the federal return.

Generally speaking, interest and dividends are taxable to New Jersey, with some exceptions, Fusillo said.

“Interest from obligations of the State of New Jersey or any of its political subdivisions are tax-exempt,” she said. “So is interest from direct federal obligations, such as United States Savings Bonds or United States Treasury Bills, Bonds and Notes.”

Capital gains are taxable unless they arise from the sale of one of the items noted above, she said.

“Regarding pension distributions, excludable amounts are those that have been taxed already, so often you will find that the feds and New Jersey do not match up on this,” she said.

Looking at the numbers you provided, your New Jersey gross income for 2018 is $158,000 — all of your income sources minus the Social Security.

“Then you are ineligible to claim the pension exclusion for this year,” she said. “New Jersey income must not exceed $100,000 in order for joint filers to qualify.”

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