21 Oct Do I qualify for the N.J. pension exclusion?

Q. I am almost 73 and single. I have military and Social Security pension income that are already excluded from income tax. I expect to receive a federal pension next year, which would be about $93,000 a year gross before I distribute some alimony. Will I qualify for the New Jersey pension exclusion of $75,000 when I retire from the federal government?
— Taxpayer, maybe

A. The New Jersey pension exclusion, for those who qualify, could make all of your income tax-free in the state.

The first requirement is that you be 62 or older.

If your total gross income reported on your Form NJ-1040 is not greater than $100,000, you will be entitled to the maximum pension exclusion of $75,000, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

“This means that you can only have other reportable income of $7,000,” he said.

If your gross income reported exceeds $100,000 but does not exceed $125,000 you get to exclude 37.5% of your pension income, he said. If your gross income reported exceeds $125,000 but does not exceed $150,000 the exclusion percentage drops to 18.75%, Becourtney said.

“Neither your military pension nor your Social Security benefits are reportable on Form NJ-1040, thus those items will not impact the available pension exclusion,” Becourtney said. “The alimony you pay reduces New Jersey taxable income but it does not reduce gross income, so it, too, does not factor into the pension exclusion calculation.”

Becourtney noted that for federal purposes, alimony payments associated with a divorce after 2018 are no longer deductible for federal purposes. New Jersey did not adopt that change so regardless of when the divorce occurred, alimony continues to be deductible for New Jersey purposes, he said.

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This story was originally published in October 2024.

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