New Jersey provides several income exclusions to enable you to reduce your taxable income. You may use the exclusions on your New Jersey income tax return every year you qualify.
If you (and/or your spouse/civil union partner if filing jointly) are 62 or older on the last day of the tax year, or you qualify as disabled under Social Security guidelines, you may be able to use the "Pension Exclusion" to exclude all or part of your taxable pensions, annuities, and IRA withdrawals provided your gross income for the entire year before subtracting any pension exclusion does not exceed $100,000.
The maximum amount you may exclude depends on your filing status. If you are married or in a civil union and file a joint return, you may exclude up to $20,000. If you file as single, head of household, or qualifying widow or widower/surviving civil union partner, you may exclude up to $15,000. If you and your spouse/civil union partner file a separate return, you may exclude up to $10,000. If you file a joint return, and both of you qualify for the Pension Exclusion, you may apply the exclusion to the total taxable pension amount on your return. However, if only one spouse/civil union partner is age 62 or older or disabled, then only the income of the one who is age 62 or older or disabled may be excluded. For example: Mr. Miller is 64 and receives a taxable pension of $3,000. Mrs. Miller is 60 and receives a taxable pension of $5,000. The Millers can use the Pension Exclusion to exclude only $3,000 of their total pension income because only Mr. Miller qualifies for the exclusion.
Other Retirement Income Exclusion
If you (and/or your spouse/civil union partner if filing jointly) are 62 or older on the last day of the tax year, you may be able to exclude other types of income (wages, interest, dividends, etc.) from your total income. There are two parts to the total exclusion: Part I, the unclaimed portion of your pension exclusion, and Part II, a special exclusion for taxpayers who are unable to receive Social Security or Railroad Retirement benefits. Each part has different eligibility requirements.
- Part I: Unclaimed Pension Exclusion. If you and/or your spouse/civil union partner did not claim the Maximum Pension Exclusion amount, you may be able to use the unclaimed portion of your Pension Exclusion to exclude other types of income (wages, interest, dividends, etc.) on your return.
To qualify for Part I of the Other Retirement Income Exclusion, you must satisfy all of the following conditions: you (and/or your spouse/civil union partner if filing jointly) must be 62 or older; your total income for the entire year does not exceed $100,000; the total amount of your income from wages, net profits from business, distributive share of partnership income, and net pro rata share of S corporation income cannot be more than $3,000; and you did not use the maximum Pension Exclusion.
Part I of the Other Retirement Income Exclusion allows you to reduce other taxable income on your return by the amount of unused Pension Exclusion. However, if you are a married/civil union couple filing a joint return and only one of you is 62 or older, only the income of the spouse/civil union partner who is 62 or older can be excluded.
- Part II: Special Exclusion. In addition to the Pension Exclusion and Part I of the Other Retirement Income Exclusion, New Jersey provides another exclusion known as the "Special Exclusion" for taxpayers who are 62 or older and who are not covered by Social Security or Railroad Retirement benefits. This benefit is not related to the Pension Exclusion and, if you qualify, you may claim it whether or not you use the Maximum Pension Exclusion. Since most taxpayers qualify to receive Social Security or Railroad Retirement benefits, few taxpayers are eligible to use the Special Exclusion.
Additional information on New Jersey's income exclusions and how to use them on your New Jersey income tax return is found in Tax Topic Bulletin GIT-1
, Pensions and Annuities.