31 Mar Will my income be eligible for the pension exclusion?

Q. Is the pension exclusion available to those who have a non-contributory pension plans? I did not contribute to my pension, so does this mean I won’t qualify for the pension exclusion?
— Retired

A. Your pension will qualify for the exclusion if you meet certain guidelines.

To qualify, you — and/or your spouse if you are filing jointly — must be 62 or older, or because of a disability, you are eligible for Social Security benefits, and you have $100,000 or less of gross income, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

The 2019 pension exclusion allows married couples who file jointly can exclude $80,000 of income, married filing separately can exclude $40,000 and singles and heads of household can exclude $60,000 of income.

For 2020, for a married couple filing jointly, the exclusion is $100,000. For a married person filing separately, the exclusion is $50,000. And for an individual filing as a single taxpayer or head of household, the exclusion is $75,000.

Papetti said for exclusion purposes, income includes: wages, taxable interest, dividends, net profits from business, net gains from the disposition of property, pensions, annuities, IRA withdrawals, partnership income, S-Corporation income, net income from rents, royalties, patents and copyrights, net gambling winnings, alimony and any other income that’s subject to New Jersey income tax.

Some income is not included for New Jersey purposes: Social Security and pension income from the private or public sector as a result of permanent or total disability received prior to age 65. Once the disabled taxpayer attains age 65, the pension income is no longer exempt and is included. Also not included are U.S. military or survivor’s pension benefits, tax exempt interest from interest from obligations of the State of New Jersey or any of its political subdivisions and interest from direct federal obligations, such as U.S. Savings Bonds and U.S. Treasury Bills, Bonds, and Notes.

Now to address your specific question, Papetti said, the following retirement income qualifies for the exclusion:

• All state and local government, teachers’, and Federal pensions both contributory or non-contributory.
• Keogh Plans also know as pension and profit sharing plans for partners and self-employed individuals
• Private sector pensions and annuities both contributory or non-contributory.
• IRAs (not including amounts contributed as they were not deductible for N.J. income tax purposes).

Based on this, your non-contributory income is eligible for the New Jersey pension exclusion, Papetti said.

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This story was originally published March 31, 2020.

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