25 Nov Will this pension be tax-free with a move to N.J.?

Q. My father is 68 years old and thinking of moving from Staten Island to New Jersey, but he’s worried that New Jersey will tax his New York City pension. He files his taxes as married jointly, and the pension is not over $100,000 per year. Would his pension be taxed?
— Trying to help

A. We’d love to welcome your dad to New Jersey, but the question about his possible tax burden includes more than just his pension income.

It will depend on what your parents’ total gross income will be in any given year for New Jersey tax purposes, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

Certain items included in federal gross income are ignored when calculating New Jersey gross income, such as Social Security benefits, interest from U.S. Treasury Obligations and unemployment compensation, he said.

On the other hand, there could be additions for New Jersey income such as non-New Jersey municipal bond interest or a capital loss carryover utilized for federal purposes.

“If total gross income reported on a Form NJ-1040 does not exceed $100,000, then all income from retirement plans will be excluded from income,” Becourtney said. “The key is keeping total income from exceeding $100,000 as this is a `cliff’ – if your parents’ income goes over $100,000, then all retirement plan distribution income is subject to New Jersey tax.”

If your parents end up moving to New Jersey, a review of Bulletin GIT-1&2, Retirement Income – Understanding Income Tax, would be helpful.

In this publication, you will find guidance on calculating the reportable portion of retirement distribution income under New Jersey law, which in most situations will be a smaller amount than reportable for federal purposes.

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This story was originally published on Nov. 25, 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.