20 Sep How does the pension exclusion cutoff work?

Q. I know $100,000 is the cutoff for the pension exclusion. Is this gross income and is it for a couple or a single person?
— Retired

A. Let’s start with the pension exclusion cliff.

Regardless of whether your filing status is single, married joint, married separate or head of household, the gross income threshold for claiming the pension exclusion is $100,000.

If your income threshold is exceeded by $1, you lose the entire pension exclusion you could otherwise claim, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

He said New Jersey gross income differs from federal gross income in many aspects, so it needs to be separately calculated.

“Some of the common differences include items that are subject to federal tax but exempt from New Jersey tax, such as interest from U.S. Treasury Obligations, Social Security benefits, and unemployment compensation,” he said. “On the other hand, non-New Jersey municipal bond interest is subject to New Jersey tax but exempt from federal tax.”

Becourtney said you should also be aware that to claim a pension exclusion, the taxpayer and/or their spouse, if filing jointly, must be 62 or older, blind, or disabled as of the last day of the tax year. Tax Topic Bulletin GIT-1, Pensions and Annuities from the New Jersey Division of Taxation provides detailed information.

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This story was originally published on Sept. 20, 2019.

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