Tax changes for NJ retirees
Q. Can you explain about before vs. after-tax savings for retirees? For example, I plan to retire in 2018 and will have a pension of about $40,000, filing taxes as single. I don’t expect additional income. What would I owe in taxes under the new bill that gives help for retirees?
— Almost retired
A. The bill that increased the gas tax in New Jersey did have a provision that’s good news for retirees.
The bill increases the pension and retirement income exclusion to $100,000 for joint filers, $75,000 for individuals and $50,000 for those married filing separately.
Social Security income isn’t included in the calculation of income tax in New Jersey.
The exclusion increase will phased in over four years starting in 2017.
To get specifics on your scenario, we turned to Abby Rosen, a certified financial planner with RegentAtlantic in Morristown.
She said right now, if you’re 62 or older and the pension listed on line 19a of your NJ-1040 is $40,000 and is your only income (line 26 equals $40,000), you are eligible for a $15,000 pension exclusion (line 27a) as single taxpayer.
Your total gross income equals $25,000, she said.
“From the gross number you can deduct exemptions ($1,000 if you are under 65, $2,000 if you are 65 or older),” she said. “Assuming no other exemptions or deductions like medical or property taxes, your taxable income (line 39) is $24,000 if you are under 65 and $23,000 if you are 65 or older.”
She said taxable income of $24,000 would be $350 New Jersey income tax. Taxable income of $23,000 would be $333 in New Jersey income tax.
You can see the New Jersey tax rate schedule here.
“Based on the new law, in 2018 you’ll be able to exclude your entire pension of $40,000 as a single taxpayer, which means you’ll pay $0 in income tax if this is your only income,” Rosen said.
You should review your particular tax situation with your tax preparer.
Email your questions to firstname.lastname@example.org.
Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.