31 Oct When I retire, will I have to pay income tax on my pension?

Q. I am single and age 62 with a pension of approximately $90,000, and I will retire at the end of the year. Am I eligible for the pension exclusion of $75,000 and then just paying state income tax on the rest?
— Still working, for now

A. Congrats on your pending retirement.

The pension exclusion is supposed to save seniors who earn under certain amounts when it comes to state income taxes.

The calculation of the pension exclusion is based on total gross income reported on Form NJ-1040, said said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

“In order to claim the maximum pension exclusion of $75,000 your total gross income cannot exceed $100,000,” he said. “If gross income exceeds $100,000, a partial exclusion is available.”

If gross income is $100,001 to $125,000, you can claim 37.5%, which amounts to $28,125, he said. If gross income is $125,001 to $150,000, you can claim 18.75%, which amounts to $14,063.

If your total gross income exceeds $150,000 then no pension exclusion can be claimed, Becourntey said.

He noted that certain income items reported on your federal income tax return are not reportable for New Jersey purposes, such as interest on U.S. Treasury obligations, unemployment compensation and the taxable portion of Social Security benefits.

“On the other hand, New Jersey income could include items not included in federal income, such as interest from non-New Jersey municipal bonds and capital gains that were offset by a capital loss carryover for federal purposes as New Jersey does not allow capital loss carryovers,” he said.

If you’re not sure about all the specifics, consider working with a tax professional when it comes time to prepare your tax returns.

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This story was originally published in October 2024.

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