We’re leaving N.J. because of taxes. Are we better off in Vermont?

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Q. I’m counting the days for retirement in four or five years. We live in New Jersey and will definitely move out because of taxes on retirement income. I would love to retire in Vermont but apparently they are not too friendly towards retirees. If we’re married filing jointly and making less than $70,000 or $80,000, how much are we talking about?
— Northern bound, maybe?

A. Taxes are always a big concern for retirees.

Before we go there, make sure you also consider what a move would mean to your lifestyle, your ability to see friends and family members and more. You know the drill.

And in your case, you might be better off from a tax perspective by staying put.

New Jersey offers a pension exclusion and if your gross income is less than $100,000, those married filing jointly can exclude $100,000 from state income tax if you’re 62 or older.

And New Jersey doesn’t tax Social Security income, so it seems you’ll have no problem qualifying.

For those who earn more, there is a partial exclusion in New Jersey. If your income is $100,001 up to $125,000, you can exclude from income tax 50% of your income if you are married filing jointly, 25% if you are married filing separately and 37.5% if you are single, head of household or a qualifying widow(er).

If your total income is $125,001 up to $150,000, you can exclude 25% of your retirement income if you are married filing jointly, 12.5% if you are married filing separately and 18.75% if you are single, head of household or a qualifying widow(er).
Vermont has different rules.

Overall, most retirement income is taxable in Vermont, Bagner said. The first $68,400 of income is taxed at 3.35%, then income between $68,400 and $165,350 is taxed at 6.6%, the from $165,350 to $251,950 is taxed at 7.6%, and higher amounts are taxed at 8.75%.

Then there’s a different treatment of Social Security.

“Social Security income is taxable if it is taxable for federal purposes,” said Kenneth Bagner, a certified public accountant with Sobel and Co. in Livingston. “There is a full exemption for those married filing jointly if you are under $65,000 of income. The exemption phases out over the next $10,000 of income and then there is no exemption.”

He said in 2022, a new law goes into effect that creates new exclusions for the first $10,000 of retirement income from military, Civil Service Retirement System (CSRS) or other eligible retirement systems not covered by Social Security.

If you want an even closer look, ask a tax preparer to run some numbers to see which state’s tax laws will be more advantageous to you.

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This story was originally published on Nov. 14, 2022.

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.