Will all of my income be taxed in N.J.?
Q. I was unemployed and then I retired. I’ll have three sources of income — unemployment, a pension and 401(k) withdrawals. I file taxes married filing jointly, as long as we keep our income under $100,000, then we won’t owe New Jersey anything? When would someone pay estimated quarterly taxes to New Jersey? And what happens if we do go over $100,000 but we didn’t pay estimated taxes?
— Taxed enough
A. We hope your new retired life is going well despite the job loss.
For starters, New Jersey doesn’t tax unemployment compensation or Social Security income.
So for New Jersey purposes, you have two sources of income: 401(k) withdrawals and pension income, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
He said New Jersey has a retirement income and other income exclusion for taxpayers who are age 62 or older.
“These exclusions apply if your New Jersey income is $100,000 or less,” he said. “If your New Jersey income is over the $100,000 limit the exclusion is not phased out. It is simply gone.”
So you won’t owe anything to New Jersey as long as you stay under the $100,000 threshold, he said.
If you go over $100,000, you will have to pay tax on the entire amount, not just the amount over $100,000.
On the estimated taxes, Kiely said New Jersey requires taxpayers to pay in the lesser of 100% of your prior year’s tax or 80% of the current year’s tax.
“These payments are through withholdings or quarterly estimated tax payments or a combination of both,” he said. “If you fail to make the necessary payments, the deficiency will be subject to interest. The current interest rate is 6¼%.”
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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.