28 Jan I’m retired. How much do I have to pay in state taxes?
Q. I turn 62 in March 2020. My pension before taxes and health insurance is $1,509 per month. I will be collecting $1,500 a month from Social Security when I turn 62. How much in state taxes am I required to pay? I think I’m eligible for the pension exclusion. I have no other income.
A. Happy early birthday to you!
Taxpayers who are eligible for the pension exclusion wonder if they have to pre-pay estimated taxes.
To give you an answer, we’re annualizing your income and assuming you’re single.
We’re also considering you as being 62 for the entire year.
Your pension of $1,509 per month is $18,108 per year and your Social Security of $1,500 per month is $18,000 per year, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
He plugged in your numbers, starting with your pension income.
“Both the federal government and New Jersey tax pension income,” he said. “Using the IRS’ Social Security rules, I determined that only $1,054 of your Social Security income would be taxable by the feds. New Jersey doesn’t tax Social Security income at all.”
For 2020 and after, the New Jersey pension exclusion is $100,000 for a couple and $75,000 for a single person, Kiely said. The pension exclusion applies if your total New Jersey income is $100,000 or below.
Accordingly, all of your pension income is excluded from taxation by New Jersey, he said.
Kiely said the Tax Cuts and Jobs Act of 2017 increased the standard deduction to $12,400 for single persons and $24,800 for married couples. The act also eliminated the personal exemption. New Jersey’s personal exemption is $1,000, he said.
“This brings you to $6,762 in federal taxable income and zero for New Jersey,” he said. “You are in the 10% federal tax bracket so your federal income tax will be $672.”
He recommends you have 4% withheld from your Social Security so you don’t have to bother making quarterly estimated tax payments.
Email your questions to moc.p1582540602leHye1582540602noMJN1582540602@ksA1582540602.
This story was originally published on Jan. 28, 2020.
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