5 New Jersey Retirement Tax Facts To Know
5 New Jersey Retirement Tax Facts To Know (and how NJ compares to PA, NY & DE)
Understanding state income taxes is a critical part of retirement planning—especially in a high-tax environment like New Jersey.
In this video, we break down New Jersey Retirement tax facts to know – how retirement income is treated at the state level, including pension income, IRA withdrawals, annuities, and Social Security benefits. We walk through New Jersey retirement income exclusion rules, NJ eligibility thresholds, and income phase-outs, along with key considerations that may affect property tax relief programs like Stay NJ.
You’ll also see a side-by-side comparison with nearby states like Pennsylvania, New York, and Delaware -— highlighting differences in tax treatment, exemption limits, and overall structure.
The goal is to provide a clear framework so you can better evaluate how state taxes may factor into your broader retirement strategy.
This is an educational overview -— not individualized tax advice.
Always consult with a qualified tax professional regarding your specific situation.
What are the five New Jersey Retirement tax facts to know?
- Social Security is not taxed in New Jersey. Regardless of federal treatment, Social Security benefits are fully exempt at the state level.
- Retirement income may qualify for an exclusion—but only within limits. Pensions, annuities, and IRA withdrawals can be partially or fully excluded if eligibility criteria are met.
- Income thresholds materially impact eligibility. The exclusion phases out between $100,000 and $150,000 of income—and is eliminated entirely once that upper limit is exceeded.
- Cross-state differences are significant. Nearby states like Pennsylvania, New York, and Delaware apply very different rules to retirement income, including flat taxes, smaller exclusions, or age-based exemptions.
- State taxes are often under-accounted for in retirement planning. Many individuals focus on federal brackets and overlook how state-level taxation can affect net income.
5 New Jersey Retirement Tax Facts To Know – Links
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Additional References & Sources for 5 New Jersey Retirement Tax Facts To Know
- NJ Division of Taxation — Retirement Income Exclusions: nj.gov/treasury/taxation/njit7.shtml
- NJ Division of Taxation — GIT-1 & GIT-2 Technical Bulletin (updated 02/01/2024)
- Pennsylvania Department of Revenue — Personal Income Tax Guide (Gross Compensation / Retirement Plans): pa.gov
- New York State Department of Taxation and Finance — Information for Retired Persons: tax.ny.gov/pit/file/information_for_seniors.htm
- Delaware Division of Revenue — Personal Income Tax FAQs: revenue.delaware.gov
- Kiplinger — Taxes in Retirement: How All 50 States Tax Retirees (2025/2026 edition)
Transcript for 5 New Jersey Retirement Tax Facts To Know
Welcome to five New Jersey Retirement Tax Facts to Know
We’ve got a reputation in New Jersey as a high tax state.
They’re not wrong.
So when you look at sales taxes, when you look at property taxes, for sure, it, it’s out of control.
But when it comes to your income taxes, uh, maybe a little different situation…
And there is, we’re finding that, there’s many residents that may not know…
or may not fully understand…
what’s involved — when we’re talking about your state income taxes.
And so we want to walk through what qualifies, who qualifies, and how the math works.
And then we also want to take a look at what’s happening next door….
in Pennsylvania, in Delaware, in New York…..
just to help you make a comparison.
But I want to begin by saying this is NOT going to be tax advice.
Always talk to a tax professional for your specific situation.
But understanding the framework, how your income tax gets calculated, is an important part of your retirement planning.
Okay, so let’s talk about the exclusion amount. Because when you’re taking retirement income, whether it’s from a pension or an annuity, or from your retirement, your IRA, your retirement account….
…. a certain portion of this may wind up being excluded for you.
So who qualifies?
Well, if you’re a resident in the state of New Jersey. And you are age 62 or older, or if you’re disabled, as defined by the Social Security Administration…..
on the last day of the calendar year…..
and your total New Jersey gross income for the entire year is $150,000 or less…..
…. you MAY be eligible to exclude some, or all, of your retirement income.
What’s included in the exclusion?
You need to know that New Jersey does not tax your Social Security benefits.
Even if a portion of your Social Security income is taxed on your federal taxes, it’s completely exempt in the state of New Jersey for your state income taxes.
The retirement income exclusion covers money coming
out of pensions,
out of annuities,
out of IRA withdrawals, things like that.
You should know that qualified Roth IRA distributions are excluded from the equation for taxable income in New Jersey.
However.
If you participate in “Stay NJ” or “Senior Freeze,” or one of these other programs they have for property tax rebates……
people are finding that Roth IRA distributions may be added back in to the math.
So may not qualify for state income taxes, but it may qual…..
it may ding you for property tax programs.
So what are the exclusion amounts?
Well, the maximum exclusion is $100,000 for married couples, filing jointly.
It’s $75,000 if you are a single filer.
And it’s 50,000 for married couples who are filing separately.
There is an income phase out, which was added in 2021.
They added these numbers in — if your income, your gross income is between $100,001 and $125,000, you can exclude 50% of the otherwise allowed pension exclusion.
If your income falls between $125,001 and $150,000…..
Well the exclusion drops then to 25%.
But what if your pension income is $150,001?
Did I say that right?
$150,001.
It’s a cliff!
Once you go over that $150,000 number…… no more exclusion.
Sorry.
You make too much money.
You’ve got to report it and pay income tax, uh, state income tax on that.
For folks who fall into that range — where they’re getting close to the exclusion amount — you need to be talking with your financial planner, your advisor, on what can be done.
Should we defer some of this income into next year?
Can we do some other things that would help?
There are some steps you (may be able to) take that may help alleviate that and keep your number under a certain threshold.
It’s certainly worth looking into.
Okay. Let’s talk about comparing what the situation is in New Jersey with some of the nearby states.
Let’s talk about, New York, Pennsylvania, and Delaware.
So first, let’s cover New Jersey.
Your Social Security income completely exempt. Your pension income can be exempt — or excluded — up to $100,000 dollars for joint filers, and $75,000 for single filers.
$50,000 if you are filing married filing separately.
The state income tax rate starts at 1.4% and can go as high as 10.75%.
It’s pretty steep.
And people seem to be hitting numbers a lot higher than they really expected or counted on.
Sometimes it seems easier to project….. in your mind, “Ok, I’m in the 22% bracket – or whatever my effective rate is, for federal taxes….”
But a lot of people overlook how much they’re actually going to owe on their state income taxes.
And this becomes a real problem at tax time.
Let’s talk about Pennsylvania.
In Pennsylvania, Social Security, again, fully exempt.
Interesting point about Pennsylvania: pension income, IRAs….. fully exempt if you’re beyond the age of 60.
You should also know that Pennsylvania has an unusual tax structure….. in the sense that they charge a flat 3.07%.
And that could be very appealing – depending on your circumstances.
Very different than what you’re going to find in some other states.
The Empire State: Social Security is fully exempt.
And you get a $20,000 per person exclusion.
I should say the first $20,000 that comes from an IRA or a retirement account, an annuity, a pension, the first $20,000. is excluded, per person.
So if you’re a married couple and you’re filing jointly, that’s $20,000 per person.
Now, state of New York income taxes start at 4%.
They go up to 10.9%.
So as with New Jersey, things can get expensive — pretty quickly!
And we find that, for New York filers and New Jersey filers…
overlooking the amount that they owe in state income taxes…..
is usually where people stumble, where we see the most miscalculations.
Let’s talk about Delaware for a moment. Uh, like all the other states, social security in Delaware is exempt.
They do have an exemption for or, or an exclusion for, people who are living on retirement income in the state of Delaware.
For pensions and IRAs, or from retirement plan distributions, you are looking at…..
if you’re over age 60, you can exclude $12,500 per person.
There was some legislation pending in Delaware last year to bump up that exclusion from $12,500 up to $25,000.
But at the time of this recording, it’s still $12,500 there.
There doesn’t seem to be any action yet.
Delaware State income taxes…. can go from a 0% up to 6.6%.
So you have to factor all of that into the equation.
These are the types of planning scenarios that we work with a lot with our clients.
You know, the grass always looks greener….. when you’re thinking about moving to some other place!
Especially if it’s out of state!
But you really need to go through these kind of exercises — before making that final decision to call the movers.
Thank you for watching “5 New Jersey Retirement Tax Facts To Know.”
