14 Jul Will this income qualify for the pension exclusion?

Q. Does my non-contributory pension qualify for the New Jersey pension exclusion?
— Retired

A. The pension exclusion was created as incentive for retired New Jerseyans to stay in the state.

Noncontributory pensions are ones for which the employee doesn’t make a contribution, so when distributions are made, they are included as taxable income.

The pension exclusion, if you qualify, allows those married filing jointly to have up to $100,000 of tax-free income. For singles, the number is $75,000, and those married filing separately have a $75,000 exclusion.

“You qualify for the pension exclusion if you — and/or your spouse/civil union partner, if filing jointly — were 62 or older or disabled as defined by Social Security guidelines on the last day of the tax year, and your total income for the entire year was $100,000 or less,” said Jonathan Donenfeld, a certified public accountant with JLD Tax & Accounting in Jersey City.

If you earn a penny more than $100,000, you won’t qualify.

For the pension exclusion, income includes wages, taxable interest, dividends, net profits from business and net gains from the disposition of property. It also includes 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.

So it depends on the amount of your pension when added to other income you may have. Consider speaking to a tax preparer who can examine all of your income so you know where you stand.

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This story was originally published on July 14, 2020.

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.