21 Feb I’m a disabled veteran. How will N.J. tax my retirement benefits?

Q. I am planning to retire from Civil Service on Dec. 31, 2025. I am currently 100% disabled and receive VA benefits, and I also am a FERS employee. I would like to know if my federal pension will be taxed by New Jersey or if I will be exempt due to my 100% VA rating.
— Veteran

A. Congratulations on your upcoming retirement.

New Jersey does not tax total and permanent disability income if one is considered disabled under the federal Social Security Act, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

“To qualify one must be receiving a U.S. military disability pension,” he said. “New Jersey also does not tax U.S. military pension benefit payments, most of which are issued by the U.S. Defense Finance and Accounting Service.”

On the other hand, New Jersey does tax federal civil service pensions issued by the U.S. Office of Personnel Management even if the pension is based on credit for military service, he said.

But even though your FERS pension does not qualify as nontaxable retirement income under New Jersey rules, you may still qualify for the state’s so-called pension exclusion, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

“For married couples, both over age 62 with New Jersey income less than $100,000, they can exclude up to $100,000 of their reportable taxable pensions, annuity and IRA withdrawals,” he said. “So for New Jersey purposes, your age,

New Jersey income level and marital status will dictate how taxable your FERS pension is for New Jersey purposes.”

You should consider meeting with a qualified certified public accountant to discuss the particulars of your situation to ensure you are only reporting what is required on your hard-earned pension dollars.

And don’t forget, there are other tax benefits that New Jersey provides for veterans.

“A military veteran who was honorably discharged or released under honorable circumstances from active duty is entitled to an annual $6,000 veteran exemption upon submitting required documentation,” Becourtney said. “An honorably discharged veteran who was 100% permanently and totally disabled during active duty service may qualify for an annual property tax exemption on their principal residence.”

Also, an honorably discharged veteran with active duty military service may qualify for an annual $250 property tax deduction, Becourtney said.

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This story was originally published in February 2025.

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