Q. I will turn 62 in November 2021. I am a retiree with a $44,000 pension as my only income. I currently tax myself at the state level to cover my tax responsibility on the pension. Can I stop the withholding because I will be eligible for the pension exclusion.
A. Let’s take a look at your total tax situation.
To do that, we’re going to assume you’re single, and someday, you will receive Social Security benefits.
In 2021, the New Jersey pension exclusion will be $75,000 for a single person over age 62 and $100,000 for a married couple, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
He said the pension exclusion is available if your income is $100,000 or less. If your income is $100,001 your pension exclusion is not phased out; it is simply gone.
“Since your income is less than $100,000, the entire pension exclusion is available to eliminate all of your state income tax,” Kiely said. “New Jersey doesn’t count Social Security income as income, so when you begin to collect Social Security, it will have no effect on your state taxes.”
In your question, you said that you tax yourself to cover your tax responsibility. We assume that means you’re either having state taxes withheld from your pension or you are making quarterly estimated tax payments.
Kiely said you are correct, in 2021, you will not have to have taxes withheld or make quarterly estimated payments.
Kiely also took a look at your federal tax liabilities.
Assuming you only have your pension and in the future you receive Social Security, if you’re single and you take the $12,400 standard deduction, your federal income tax will be $3,625 per year, he said.
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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.