12 Feb Must I have taxes withheld from my pension or IRA withdrawal?
Q. We are both 62. My pension, IRA withdrawals and my part-time job are less than $100,000. Our total income was $49,490 and Social Security which we know is not taxable in New Jersey. Do I need to have state income tax deducted from my monthly pension or my IRA withdrawals if I know my total income will be below the New Jersey $100,000 threshold for the pension exclusion?
— Trying to manage taxes
A. The New Jersey pension exclusion is a big benefit for those who have New Jersey income of $100,000 or less.
Because you are both at least age 62, and if your total New Jersey income is $100,000 or less — you can exclude pension and retirement income from New Jersey tax, said Claire Toth, an attorney and certified financial planner with Peapack Private Wealth Management in Summit.
As you point out, New Jersey does not tax Social Security benefits, so they don’t come into this calculation, Toth said.
Most other retirement income, including IRA distributions and most pensions, is reported on the New Jersey income tax return (line 20a), she said. If a taxpayer has after-tax contributions to those plans, those are backed out on line 20b.
Finally, the retirement/pension exclusion is figured on line 28, producing New Jersey gross income on line 29, she said.
“If that number is $100,000 or less, the income on line 28 is not taxed,” Toth said. “This is a cliff — either all is taxed or none is taxed.”
So, she said if your New Jersey gross income is $100,000 or less, the pension and IRA income is reported on the New Jersey 1040 but is not taxed, she said.
Here’s some more good news.
New Jersey does not require income tax withholding from pensions and IRA withdrawals, Toth said.
“Regardless of age, wages must be reported on your New Jersey tax return (line 15),” she said. “Whether or not those wages are taxable depends on the totality of your situation. Essentially, you must report income on the tax return. Whether or not that income is taxable is particular to your situation.”
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This story was originally published Feb. 12, 2021.
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