15 Nov How will N.J. tax my pension from New York City?
Q. I am a retired, single, 61 and I have a $96,000 pension from New York City. I plan to move to New Jersey next year when I am 62. At that time, I plan to receive Social Security totaling about $2,200 per month before taxes. How will my pension be taxed in New Jersey? I also have about $400,000 in deferred compensation and IRA accounts which I plan to take after 72 on an as-needed basis.
— Moving, I think?
A. Welcome to the Garden State.
The answer to your question hinges on whether the pension income you derived from your past New York employment was from a noncontributory plan or a contributory plan.
A noncontributory plan does not require an employee to make contributions towards their retirement, with payments received from such a plan fully taxable, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
On the other hand, a contributory plan requires employee contributions, which are recovered tax-free under one of two methods found in Publication GIT-1&2: Retirement Income, he said.
“A taxpayer with a single filing status is entitled to a yearly pension exclusion of the lesser of actual taxable pension income or $75,000, if they attained age 62 by the end of the year and total income for the year does not exceed $100,000,” he said. “Social Security benefits are expressly nontaxable for New Jersey purposes and thus are ignored in calculating gross income.”
Upon attaining age 72 in 11 years, you said you will begin receiving Required Minimum Distributions from other retirement accounts, which will affect your gross income and the corresponding pension exclusion, he said. But that will not be until 2032.
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This story was originally published on Nov. 15, 2021.
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