08 Nov If I move to N.J., will the state tax my pension?
Q. We live in Brooklyn and are thinking of moving near our grandchildren in New Jersey. We were told that soon New Jersey is not going to tax our pension check. Is that true? We can never move to New Jersey if our pension, which is our only income, gets taxed. Please advise.
A. We’ve got good news for you.
First, when you move to New Jersey, of course you may owe federal taxes, but for state taxes, you would only pay taxes on your retirement income to New Jersey.
On January 10, 1996, Congress enacted the Pension Source Tax Act.
“This law states that no state can impose a tax on any retirement income of an individual who is not a resident of that state,” said Patricia Daquila, a certified financial planner and certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence. “In simple terms, you only pay taxes on your retirement income in the state that you are a resident.”
So if you move from New York to New Jersey, you only pay taxes on your pension income to New Jersey, Daquila said.
Note that New Jersey does not tax Social Security benefits, U.S. military pensions resulting from service in the military or railroad retirement benefits.
Also, New Jersey does have a pension income exclusion.
“If you are 62 years or older or disabled and your total income for the year is $100,000 or less, then you qualify,” Daquila said.
She said the pension income exclusion is currently increasing each year until the year 2020.
Your filing status determines the amount of the exclusion.
“In 2019, if you are married and file a joint tax return and your total income is less than $100,000, then your pension exclusion would be $80,000,” she said. “For years 2020 and after, the amount of the pension exclusion for a married filing joint return increases to $100,000.”
Daquila notes that if you and your spouse file a joint and only one of you is 62 years or older, you can exclude only the income of the spouse that qualifies.
If you do not use the maximum pension exclusion for your filing status, then you may qualify to use your unclaimed pension exclusion if you meet the following requirements, she said.
First, you need to be 62 or older. In addition, your total income needs to be less than $100,000. Also, your combined income from wages, net profits from business, distributive share of partnership income, and your net pro rata share of S corporation income need to be less than $3,000, she said.
“Therefore, if you meet all the qualifications above, and you have not used your full pension exclusion, then you can use the balance of your unclaimed pension exclusion on other types of income such as wages, interest, dividends, etc.,” she said.
So welcome to New Jersey!
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This story was originally published on Nov. 8, 2019.
NJMoneyHelp.com 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.