02 Mar How much of my income can I exclude from N.J. taxes?

Q. I’m having trouble understanding the pension exclusion provision provided by New Jersey. I am single, and older than 65. My total income on Line 27 of the NJ 1040 is appx. $36,000. The sources for all this income are a 401(k) distribution, pension income, annuity income and bank interest of less than $100. What can I exclude for the pension exclusion?
— Retiree

A. New Jersey allows taxpayers aged 62 or older to exclude a certain amount of income from taxation.

To qualify, in addition to meeting age restrictions, your income level matters.

In 2022, pension income was excluded if their gross income was $100,000 or below, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

Because New Jersey does not tax Social Security income, the $100,000 in gross income does not include Social Security, he said.

In 2022, the maximum pension exclusion was $100,000 for married couples, $75,000 for singles and $50,000 for married couples filing separately.

If your total income is $100,001 up to $125,000, you can deduct a percentage of your retirement income: 50% if you are married filing jointly, 25% if you a married filing separately and 37.5% if you are single, head of household or a qualifying widow(er), he said

If your total income is $125,001 up to $150,000, you can deduct a smaller percentage of your retirement income: 25% if you are married filing jointly, 12.5% if you a married filing separately and 18.75% if you are single, head of household or a qualifying widow(er), he said.

If your income was at $100,000 or below and you didn’t have sufficient pension income to use up the available exclusion, you could use the “Other Retirement Income Exclusion” to exclude other income such as wages, interest, dividends, self-employment income and capital gains, Kiely said.

“The `Other Retirement Exclusion’ is available only if your salaries, wages, sole proprietorships, partnerships and S-Corporations were $3,000 or less,” he said. “If your earned income exceeds $3,000 you are not entitled to the `Other Retirement Income Exclusion.’”

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This story was originally published on March 2, 2023.

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