State-by-State Guide to Taxes on Retirees
Tool | December 2020

New Jersey State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

New Jersey

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The Bottom Line
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Least Tax-Friendly

Year in and year out, the Garden State ranks as one of the least tax-friendly states for retirees and others. But New Jersey has made some efforts to reduce the income tax burden on retirees, with a very generous exemption for retirement income and a complete exemption for Social Security benefits. Sales taxes are below average, too.

It's not enough, though, to overcome New Jersey's crushing property taxes—the highest (on average) in the country, with residents facing a median property tax rate of $2,417 in taxes per $100,000 of assessed home value.

Plus, even though New Jersey recently eliminated its estate tax, the state still imposes an inheritance tax.

Income Tax Range

Low: 1.4% (on up to $20,000 of taxable income)

High: 10.75% (on taxable income over $1 million)

Newark also imposes a payroll tax.

Taxation of Social Security Benefits

Social Security benefits are not taxed by the state.

Tax Breaks for Other Retirement Income

Taxpayers age 62 or older with New Jersey income of $150,000 or less can exclude some or all of their income from a pension, annuity, IRA, or other retirement plan. For taxpayers with gross income of $100,000 or less, the maximum exclusion is $100,000 for joint filers, $75,000 for single filers, and $50,000 for married taxpayers filing a separate return. For taxpayers with gross income between $100,001 and $125,000, the maximum exclusion is 50% of retirement income for joint filers, 37.5% of retirement income for single filers, and 25% of retirement income for married taxpayers filing a separate return. For taxpayers with gross income between $125,001 and $150,000, the maximum exclusion is 25% of retirement income for joint filers, 18.75% of retirement income for single filers, and 12.5% of retirement income for married taxpayers filing a separate return. (Note: Taxpayers who did not claim the maximum pension exclusion amount may be able to use the unclaimed amount to exclude other types of income (e.g., wages, interest, dividends, etc.) on their New Jersey tax return.)

Taxpayers who are otherwise eligible for Social Security or Railroad Retirement benefits, but will never be able to receive those benefits because their employer did not participate in either program, may qualify for a special exclusion of $6,000 (joint filers, head-of-household filers, and qualifying widow(er)s) or $3,000 (single filers and married taxpayers filing separately).

Military pensions and Railroad Retirement benefits are fully exempt.

Sales Tax

6.625% state levy. That rate is cut in half (3.3125%) for in-person sales in designated Urban Enterprise Zones located in disadvantaged areas. Salem County, which borders no-tax Delaware, also charges the reduced 3.3125% rate. As a result, the average rate in the state is 6.6%, according to the Tax Foundation.

Groceries: Exempt
Clothing: Exempt
Motor Vehicles: Taxable (6.625% throughout state)
Prescription Drugs: Exempt

Real Property Taxes

In New Jersey, the median property tax rate is $2,417 per $100,000 of assessed home value.

Homeowners age 65 or older, or who are blind or disable, may qualify for a property tax credit under the Homestead Benefit Program. For benefits based on 2018 property taxes (which will be paid in May 2022), qualifying residents with 2018 gross income at or below $100,000 receive a 10% credit on the first $10,000 of property taxes paid. If 2018 gross income is between $100,001 and $150,000, the credit is 5% of the first $10,000 of property taxes paid.

The Property Tax Reimbursement Program, also known as the "senior freeze," 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 of 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 is greater. All of the eligibility requirements must be met for the base year and each succeeding year to qualify for the reimbursement. Among the requirements: You must be 65 or older, have lived in New Jersey for at least the past ten years and not have income exceeding certain limits for the previous two years. (For 2018 and 2019, the income limits are $89,013 and $91,505, respectively.)

A $250 tax deduction from property taxes is also available to a homeowner age 65 or older or permanently and totally disabled, 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.

Annual Car Taxes and Fees

No annual vehicle tax or fee is imposed.

Estate and Inheritance Taxes

New Jersey imposes an inheritance tax on inherited property with a value of $500 or more. No tax is imposed on transfers to the decedent's spouse, domestic partner, parents, grandparents, children and their descendants, or step-children (step-grandchild and their descendants are not exempt). The first $25,000 of property inherited by a decedent's sibling, son-in-law or daughter-in-law is also exempt. After that, they must pay the inheritance tax at rates ranging from 11% to 16%. All other individual heirs pay a 15% tax on the first $700,000 of inherited property and a 16% tax on everything over $700,000.

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