27 Sep Are taxes prorated for the pension exclusion?

Q. For the retirement income exclusion, if my current retirement exceeds $100,000, will taxes be prorated, and then will tax only be due for the remaining portion of income?
— Hopeful

A. Sorry. That’s not how it works.

You have to meet two requirements to qualify for the New Jersey pension exclusion.

First, you must be age 62 by the end of the end of the calendar year in which distributions from taxable
pensions, annuities, IRAs, and the like were received, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Eatontown.

Second – and here’s the bad news for you – your total income for the year must be $100,000 or less.

“Therefore, if your income before the pension exclusion exceeds $100,000, you will not be entitled to any pension exclusion. No proration is permitted,” Becourtney said.

He said the two requirements were unchanged by the legislation that was enacted in the fall of 2016 that increased the yearly pension exclusion over four years, from 2017 to 2020.

So, for 2018, the maximum pension exclusion amounts are based on your filing status. It’s $60,000 for those married filing jointly, $45,000 for singles and heads of household, and $30,000 for those married filing separately.

“Commencing in 2020, the maximum pension exclusion for joint filers will be $100,000,” Becourtney said, noting he’s assuming you’re a joint filer. “Since total income for the year cannot exceed $100,000, in order for the pension exclusion to be available, only in the case where a joint filer has precisely $100,000 of taxable retirement income or less – and no other income – will the maximum $100,000 exclusion be available.”

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