Can we get the pension exclusion if we file taxes separately?


Q. We are a retired married couple in New Jersey whose pension income is over $100,000. Can we file separately to qualify for the pension exclusion individually?
— Taxpayers

A. There are many factors that must be considered in determining whether a married couple should file jointly or separately.

The filing status that is chosen applies to the federal tax filing and the New Jersey tax filing, said David Ritter, chair of the tax practice at Brach Eichler in Roseland.

So whatever you choose for the state will also have to apply to your federal taxes.

Ritter said the New Jersey pension exclusion is available to a married couple filing jointly if their total income — not just pension income — is $100,000 or less in year 2020. In 2019, the income level was $80,000.

A married couple filing separately needed the total income of the individual to be less than $50,000 to qualify for the pension exclusion in 2020, he said. For 2019, the income level was $40,000 for separate filings.

“Thus, if one of a couple has income below the $50,000 level for year 2020 but the couple combined has income in excess of the $100,000 mark, then it may be better to file separately for this purpose,” Ritter said. “You must look at the entire tax filing for Federal and New Jersey to determine if filing separately is best.”

We recommend you have a tax preparer create pro forma returns for you to help make the determination.

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This story was originally published on Aug. 20, 2o20. 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.