17 Feb Do I have to pay taxes on my federal pension in N.J.?

Q. I am 67 years old. I moved to New Jersey in August 2022. I retired from working for an agency of the federal government in February 2022. I do not get Social Security, but I get a monthly annuity under the Civil Service Retirement System (CSRS). Will my monthly annuity under CSRS be taxable here as a New Jersey resident?
— Retiree

A. Welcome to the Garden State.

And congratulations on your retirement.

The New Jersey personal income tax does not strictly follow the federal personal income tax rules, said Neil Becourtney, a certified public accountant and tax director for Smolin, Lupin & Co. in Red Bank.

He said certain retirement distribution income, including Social Security benefits, Railroad Retirement benefits and United States military pensions are expressly exempt from the gross income tax in the state — but not the income from your annuity source.

However, he said, you may be able to avail yourself of the New Jersey pension exclusion.

A single taxpayer who is age 62 can exclude up to $75,000 of otherwise taxable retirement distribution income as long as total New Jersey gross income does not exceed $100,000, Becourtney said. If total gross income is $100,001 to $125,000, a 37.5% exclusion can be claimed, and if gross income is $125,001 to $150,000, an exclusion of 18.75% can be claimed, he said.

These thresholds are cliffs and are not progressive, he said, and he offered this example.

Let’s say your CSRS income in 2023 is $50,000 and your total gross income is $99,000. You would get to exclude the entire $50,000 of retirement income, Becourtney said.

But if your gross income climbs by just $2,000 to $101,000, then the pension exclusion drops to 37.5% equal to $18,750.

“Thus the $2,000 increase in non-retirement income would cause $31,250 of the CSRS income to be subject to New Jersey tax,” he said. “This makes it important to monitor your income throughout the year.”

Also note that for 2022, when you will file as a part-year resident, the same income thresholds apply, but the pension exclusion amounts are pro-rated, he said.

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This story was originally published on Feb. 17, 2023.

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