NEW JERSEY
Return to Retiree Tax Map
NICKNAME
The Garden State
BOTTOM LINE: NOT TAX-FRIENDLY
New Jersey's tax policies create a thicket of thorns for some retirees. Its combined state and local tax burden and its median real estate taxes are the highest in the nation, according to the Tax Foundation. The top income-tax rate is 8.97%. However, New Jersey does offer retirees some breaks. It does not tax Social Security benefits and military pensions. Seniors may also qualify for an exclusion of part of their retirement income from state income taxes.
STATE SALES TAX
7%. Food, prescription and nonprescription drugs, clothing and footwear are exempt. Local sales taxes are imposed on certain items sold in Atlantic City and Cape May County.
INCOME-TAX RANGE
Low: 1.4% (on up to $20,000 of taxable income)
High: 8.97% (on taxable income over $500,000)
SOCIAL SECURITY
Benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Railroad Retirement benefits and military pensions are not taxable. Persons 62 or older may exclude all or part of their taxable pensions, annuities and IRA withdrawals if their gross income for the entire year before subtracting any pension exclusion does not exceed $100,000. The maximum amount excluded depends on your filing status. If married and filing a joint return, you may exclude up to $20,000. If you file as single, head of household, or qualifying widow or widower, you may exclude up to $15,000. If you are married and filing a separate return, you may exclude up to $10,000.
PROPERTY TAXES
Property taxation is local. The Homestead Rebate Program provides rebates for homeowners who occupied their principal residence in New Jersey on October 1, paid property taxes on that dwelling and whose gross income for the year does not exceed certain limits.
Tax breaks for seniors: The Property Tax Reimbursement Program reimburses eligible senior citizens for property-tax increases. The amount reimbursed is the difference between the amount of property taxes that were due and paid in the first year that the homeowner met all the eligibility requirements and the amount due and paid in the current year for which the homeowner is claiming the reimbursement, provided the amount paid in the current year was greater. All the eligibility requirements must be met for the base year and each succeeding year to qualify for the reimbursement.
A Property Tax Deduction/Credit is available to eligible homeowners and tenants who pay property taxes, either directly or through rent, on their principal residence in New Jersey. They are eligible for either a deduction or a refundable credit on their New Jersey resident income-tax return. Homeowners and tenants may be eligible for a deduction or credit even if they are not eligible for a homestead rebate. Qualified residents may deduct 100% of their property taxes due and paid or up to $10,000, whichever is less. For tenants, 18% of rent paid during the year is considered property taxes paid.
A $250 tax deduction from real property taxes is available to a senior 65 or older, a permanently and totally disabled individual, or the unmarried surviving spouse (55 or older) of such a person. To qualify, annual household income cannot exceed $10,000. This benefit is administered by the local municipality.
INHERITANCE AND ESTATE TAXES
New Jersey imposes an inheritance tax, at graduated rates ranging from 11% to 16%, on the transfer from a decedent to a beneficiary of real and personal property that has a total value of $500 or more. No tax is imposed on parents, grandparents, descendants, spouses, civil union partners, domestic partners or charities.
New Jersey also imposes a separate estate tax on estates that exceed $675,000. The maximum estate-tax rate is 16%. An estate may be subject to the New Jersey estate tax even if there is no New Jersey inheritance tax due.
Visit RetirementLiving.com for a complete rundown of taxes in New Jersey.
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