09 Jan Why didn’t we qualify for the pension exclusion?

Q. My husband and I filed our 2017 state income last year. Our total gross income was $100,333. Our taxable income was $98,333. Our taxable income after property tax deductions was $89,131. Why didn’t we qualify for the New Jersey pension exclusion?
— Still working

A. You’re among the unfortunate ones who missed that tax break by a hair.

New Jersey allows seniors who are 62 or older to exclude all or part of their pension income, plus other income, from their state income tax return, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

This exclusion is going up between 2017 and 2020 as long as your gross income – not taxable income – is not more than $100,000, Kiely said. The exclusion was $40,000 in 2017, is $60,000 in 2018 and $80,000 in 2019. In 2020, it reaches $100,000.

“But if your gross income is one dollar more than $100,000, you get zero pension exclusion,” Kiely said. “It is not phased out – it is simply gone.”

Kiely said the instructions for calculating the “Pension Exclusion and Other Retirement Income Exclusion” state that the $100,000 limit is based on line 26, Total Income.

“So what income is not included on line 26? There are three types of income that don’t show up: Social Security benefits, New Jersey municipal bond interest and federal government bond interest,” he said. “Pretty much everything else is included as income on your New Jersey tax return.”

So you and your husband missed the $40,000 exclusion in 2017 by $333. This cost you $1,335 in additional state taxes, Kiely said.

Look at your 2017 state income tax return closely, Kiely said.

“Is there any way you can reduce your gross income by at least $333?” Kiely said. “If you have interest income, consider putting your money in New Jersey municipal bonds. If you have dividend income, consider moving your money into non dividend paying stocks or mutual funds.”

We hope you can find a way to qualify for this valuable benefit for your 2018 return.

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