17 Feb What about estimated taxes with the pension exclusion?

Q. If you earn less than $100,000 and qualify for the pension exclusion, I get that they withhold taxes from your pension and you get it back when you file your return. But does the money even need to be withheld?
— Retired

A. If you earn less than $100,000, you may qualify for the pension exclusion.

Here’s what you need to know.

New Jersey does not tax the income during the year, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

He said the tax someone pays is not calculated until you file your taxes the following April 15.

As you indicated, you may request that taxes are withheld from your pension each month so that if you do indeed owe taxes in April, you have paid in all or most of what you may owe.

“In regards to your New Jersey pension, you can elect to have some of the tax withheld from each monthly pension payment,” Hook said. “If it turns out you qualify for the pension exclusion, then you get back the amount withheld when you file your state tax return.”

So in essence, he said, New Jersey doesn’t actually tax you during the year. If you have funds withheld, at worst, you gave them a tax-free loan until you filed your tax return, Hook said.

You can avoid the withholding, but you don’t want to get a surprise tax bill on April 15.

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This story was originally published on Feb. 17, 2020.

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