by Frank Stettner, CPA, CFP ®, Senior Vice President
New Jersey allows seniors who are 62 or older to exclude all or part of their pension income, plus other income, from their state income tax return. This exclusion is going up between 2017 and 2020 as long as your gross income – not taxable income – is not more than $100,000. The exclusion was $40,000 in 2017, $60,000 in 2018 and is $80,000 in 2019. In 2020, it reaches $100,000. If your gross income is one dollar more than $100,000, you get zero pension exclusion. It is not phased out – it is simply gone .The instructions for calculating the “Pension Exclusion and Other Retirement Income Exclusion” state that the $100,000 limit is based on line 26, Total Income.
So what income is not included on line 26? There are three types of income that don’t show up: Social Security benefits, New Jersey municipal bond interest and federal government bond interest. Everything else is included as income on your New Jersey tax return.
If you are close to the $100,000 threshold, is there any way you can reduce your gross income to come in below the allowable amount? If you have interest income, consider putting some money in New Jersey municipal bonds. If you have dividend income, consider moving some money into non dividend paying stocks or mutual funds. Evaluate this with your advisor to see if it makes sense for you.