07 Mar Will my federal pension be taxed by N.J.?

Q. I receive a federal civil service pension that’s way under $100,000. My wages are under $10,000. I was 62 for all of 2021. Does my federal civil service pension fall under the New Jersey pension exclusion?
— Taxpayer, maybe

A. We’ve got some good news for you.

Here’s how the pension exclusion works.

The state allows taxpayers to exclude all or part of pension income received for state income tax purposes based on certain requirements, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.

Beginning with tax year 2021, the income limit for the pension exclusion increased to $150,000, he said. This is a change prior years, where there was a cliff that if $1 was earned above the $100,000 limit for those married filing jointly, all income was taxable, he said.

“In addition to qualifying based on income limits, you — and/or your spouse/civil union partner, if filing jointly — must be 62 or older or disabled as defined by Social Security guidelines on the last day of the tax year,” Sarnecki said. “Depending on your income, you can exclude reported taxable pension, annuity and IRA withdrawals up to the maximum amount for your filing status.”

To get the max, singles must have income under $75,000 and for those married filing jointly, income under $100,000.

If your total income is $100,001, but not more than $150,000, you can exclude a percentage of your reported taxable pension, annuity, and IRA withdrawals.

• $100,001 – $125,000: Singles can exclude 37.5% and married filing jointly can exclude 50%.
• $125,000 – $150,000: Singles can exclude 18.75% and married filing jointly can exclude 25%.

Sarnecki said New Jersey does not tax U.S. military pensions, regardless of age.

“This does not apply to civil services pensions though, even if bed on a credit for military service. Therefore, this would be reportable income,” Sarnecki said. “That being said, assuming the above is your only income, you would qualify.”

You should speak with your tax advisor to make sure you are not missing anything.

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This story was originally published on March 7, 2022.

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