17 Jul How does filing separately impact Stay NJ eligibility?

Q. My husband is 65, and I am 60. We usually file our taxes as married filing separately so he can take full advantage of the New Jersey pension exclusion. I’m wondering how a separate filing status will affect his benefits under the Stay NJ program for next year. Will he be entitled to the full amount of the benefit — assuming he otherwise qualifies — or will it be reduced by half because we filed separately?
— Taxpayer

A. Let’s go over some details here.

There are several eligibility requirements for the pension exclusion.

First, you must be 62 years of age or older, or permanently disabled/blind, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

If filing jointly and both spouses received retirement income, but only one of you is 62 or older or permanently disabled/blind, you may only exclude the retirement income of the eligible spouse, he said.

Kiely said if your gross income is less than $100,000, you may exclude up to: 100% if you are married/CU couple, filing a joint return; 75% if you are single, head of household, or qualifying widow(er)/surviving CU partner; or 50% if you are married/CU partner, filing a separate return.

If your gross income is $100,001 to $125,000, you may exclude 50% of your pension and other retirement income if you are a married/CU couple, filing a joint return; 37.5% of your pension and other retirement income if you are single, head of household, or qualifying widow(er)/surviving CU partner; or 25% of your pension and other retirement income if you are married/CU partner, filing a separate return, he said.

Then if your gross income is $125,001 to $150,000, you may exclude 25% of your pension and other retirement income if you are married/CU couple, filing a joint return; 18.75% of your pension and other retirement income if you are single, head of household, or qualifying widow(er)/surviving CU partner; or 12.5% of your pension and other retirement income if married/CU partner, filing a separate return, he said.

Based on the above, Kiely said, he’s assuming that your combined income is more than $150,000. So, by filing jointly your husband would not be able to deduct any of his pension income, he said.

You ask how filing separately would affect his benefits under the Stay NJ program.

“The instructions for Form PAS-1 that covers the Senior Freeze, Anchor and Stay NJ Program state that if you were married and filed separate NJ 1040 forms and lived in the same home you must combine your incomes,” he said. “If your combined income was $500,000 or less and you lived in your home for all of 2024 you will be eligible for a 50% reduction ($6,500 maximum) of your real estate taxes.”

Also, how does filing separately affect your federal income taxes?

“Generally, New Jersey requires you to use the same filing status on your state tax return that you used on your federal income tax return,” he said. “So, if you file separately on New Jersey, you must file separately on your federal tax return. My experience is that couple who file separately on their federal tax return pay signifyingly more federal taxes. You should check this out.”

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This story was originally published in July 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.