19 May I retired and moved to N.J. How will my pension be taxed?

Q. I am a retired Pennsylvania teacher and we recently moved to New Jersey. I’m confused about how my pension was impacted by the fact that we now reside in a state that does tax pensions. I thought taxes would be taken out of my biweekly pension check but that didn’t happen. And should the income from Social Security be subtracted from our combined income calculations?
— New resident

A. Welcome to the Garden State.

Personal income tax calculations here are far more complicated than in Pennsylvania.

As a teacher, the school system that employed you would most likely have offered you a Sec. 403(b) plan that is common for tax-exempt organization employers, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

“New Jersey does not recognize Sec. 403(b) plans and as a result only the earnings portion of a distribution from a Sec. 403(b) plan is subject to New Jersey tax as no tax benefit was derived from the contributions made into the plan,” he said.

In Publication GIT-1&2, Retirement Income, found on the New Jersey Division of Taxation web site, use Worksheet C – IRA Withdrawals to calculate the taxable portion of your yearly distribution.

“Withholding on retirement distribution income is optional for federal as well as New Jersey purposes,” Becourtney said. “If you so desire, you could request that federal tax be withheld on your yearly retirement plan distributions but the Pennsylvania entity disbursing your distributions is not going to be able to withhold New Jersey tax for you.”

The publication also addresses the New Jersey pension exclusion for those who meet income levels and are age 62 or older.

“Depending on your situation it is conceivable that no portion of your retirement distribution income will be subject to New Jersey tax,” he said. “Social Security benefits, which can be partially taxable for federal purposes, are never taxable for New Jersey purposes and do not factor into the calculation of taxable retirement distribution income.”

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This story was originally published on May 19, 2023.

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