State-by-State Guide to Taxes on Retirees - New_Jersey
Tool | November 2019

State-by-State Guide to Taxes on Retirees

New Jersey

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The Bottom Line
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Least Tax-Friendly

New Jersey has made efforts to reduce the income tax burden on retirees, with a very generous exemption for retirement income. For example, married seniors filing a joint return can exclude up to $80,000 of income from a pension, annuity, IRA, or other retirement plan if their New Jersey income is $100,000 or less. Single taxpayers and married taxpayers filing a separate return can exclude up to $60,000 and $40,000, respectively. Plus, starting in 2020, the maximum exemption increases to $100,000 for joint filers, $75,000 for single filers, and $50,000 for separate filers.

It's not enough, though, to overcome New Jersey's crushing property taxes—the highest (on average) in the county, with residents paying an average of $2,530 in taxes per $100,000 of assessed home value.

Although New Jersey recently eliminated its estate tax, the state still imposes an inheritance tax.

State Sales Tax

6.625% state levy. That rate is cut in half (3.313%) for in-person sales in designated Urban Enterprise Zones located in disadvantaged areas. Salem County, which borders no-tax Delaware, also charges the reduced 3.313% rate. Notably, motor vehicles are charged at the regular rate in these locations. Most clothing and footwear are tax-exempt year round throughout the state.

Income Tax Range

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

High: 10.75% (on taxable income over $5,000,000).

Effective tax rate: 1.53% for single filers, 3.37% for joint filers

New Jersey allows localities to impose an income tax; the average levy is 0.5%, per the Tax Foundation.

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Taxpayers age 62 or older with New Jersey income of $100,000 or less can exclude up to $60,000 of income from a pension, annuity, IRA, or other retirement plan. The maximum exclusion is $80,000 for joint filers and $40,000 for married taxpayers filing a separate return. (Beginning in 2020, the maximum exemption increases to $75,000 for single filers, $100,000 for joint filers, and $50,000 for separate filers.)

Military pensions and Railroad Retirement benefits are fully exempt.

Property Taxes

In New Jersey, residents pay an average of $2,530 in taxes per $100,000 of assessed home value.

Tax breaks for seniors: 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 $70,000.

A $250 tax deduction from property taxes is 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.

Vehicle Taxes

Sales tax is due on purchases.

Inheritance and Estate Taxes

New Jersey imposes an inheritance tax ranging from 11% to 16% on inherited property with a value of $500 or more. The amount of tax due is based on who specifically receives the property and how much the property is worth.

The decedent's spouse; children, grandchildren, etc.; parents, grandparents, etc.; mutually acknowledged children; and stepchildren (but not step-grandchild or their descendants) do not have to pay the tax. The first $25,000 of property inherited by the decedent's sibling, son-in-law or daughter-in-law) is exempt as well. 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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