NJ Retirement Income Exclusions
For 2021, NJ increased the retirement income exclusion to encourage seniors to stay in the Garden State. You can exclude all or part of your pension income for 2021 if you meet the following:
- You were 62 or older or disabled on the last day of the tax year.
- Your 2021 total income was $150,000 or less (increased from $100,000 in 2020)
If you and your spouse file a joint return and only one of you is 62 or older or disabled, you can still claim the maximum pension exclusion. However, you can only exclude the pension income of the qualified spouse.
Total Income of $100,000 or Less
If your total income is $100,000 or less, you can exclude taxable pension, annuity and IRA withdrawals up to the maximum amount per your filing status as below:
Married Filing Joint Married Filing Separate Single or Head of Household
$100,000 $50,000 $75,000
Total Income of $100,001 – $150,000
If your total income is $100,001, but not more than $150,000, you can exclude a percentage of your taxable pension income. The chart below indicates your exclusion amount.
|Total Income||Filing Status||% of Taxable Pension|
|$100,001- $125,000||Married Filing Joint||50%|
|Single/head of household||37.50%|
|$125,001- $150,000||Married Filing Joint||25%|
|Single/head of household||18.75%|
Beware of the cliff!
If you file married filing joint and your taxable income is $100,000, your maximum pension exclusion could be as high as $100,000. If you earn an additional $1 and have taxable income of $100,001 you could lose $50,000 of the pension exclusion.
Any planning ideas?
When planning to sell securities at a gain at year-end, taxpayers whose income is approaching the $100,000 cliff should be careful not to add a small amount of income pushing them over the cliff. This additional income could increase your NJ taxes by $1,000. An additional year-end IRA distribution could also put your income over the $100,000 cliff and cause you to lose up to 50% of the exclusion.
With a little bit of planning, New Jerseyans can maximize the pension exclusion. This may keep more seniors in the Garden State to enjoy the Jersey Shore with their grandchildren.