18 Mar Is the pension exclusion income limit going up?

Q. For the pension exclusion, I remembered seeing something about the $100,000 income cap eventually going up to $125,000. When is that going to happen?
— Taxed out

A. You’re talking about the tax benefit for New Jersey residents aged 62 or older or disabled residents of any age.

If they qualify, they won’t have to pay state income tax on pensions, annuities retirement plan withdrawals and other retirement income.

For 2020, whether you’re single or married, your gross income in New Jersey must be $100,000 or less to be able to qualify for this exclusion, said Michael Cocco, a certified financial planner with Beacon Wealth Partners in Nutley.

He said Social Security income, federal bond interest, and New Jersey municipal bond interest are not taxable in New Jersey, so you would not have to include these items as part of your New Jersey gross income towards qualifying for this exclusion, he said.

“If your income is one penny more than the $100,000, then you lose the entire ability to use this exclusion,” he said. “There are no exclusion benefits if your income exceeds $100,000, such as a partial exclusion.”

But that is something that was talked about when legislators considered this bill.

Amendments eliminated any increase to the qualifying income cutoff.

“The amendments also eliminate the provision, for taxable years beginning on or after January 1, 2021, that allowed a taxpayer with income of more than $100,000 but not over $125,000 to exclude 50 percent of the amount of pension and retirement income otherwise allowed and a taxpayer with more than $125,000 but not more than $150,000 of gross income to exclude 25 percent of the amount otherwise allowed,” it said.

In 2020, the exclusion allows married couples who file jointly and who meet the income eliminations to avoid paying taxes on $100,000 of income, while singles can avoid paying tax on $75,000, Cocco said.

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This story was originally published on March 18, 2020.

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