19 Jun Will this retired trooper’s pension be taxed if he moves to N.J.?

Q. If my father-in-law, a retired Pennsylvania trooper, was to move to New Jersey, would his pension be taxed?
— Trying to help

A. We hope we can welcome your father-in-law to the Garden State.

As to whether his pension would be taxed here, it depends.

Pennsylvania does not tax retirement income such as pensions or IRA distributions, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

While New Jersey does tax pension and IRA distributions, it also has a pension exclusion provision, he said.

“New Jersey allows taxpayers aged 62 or older to exclude a certain amount of pension income — pension, IRA or 401(k) — from taxation if their income was at or below a certain amount,” Kiely said. “In 2022, pension income was excluded if their gross income was $100,000 or below.”

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, he said.

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 Qualifying widow(er), he said.

And 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 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. If your earned income exceeds $3,000 you are not entitled to the `Other Retirement Income Exclusion,.’”

So, if your father-in-law moves to New Jersey, whether or not his pension is taxed will all depend on his income levels.

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This story was originally published June 19, 2023.

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