Tool | November 2017

State-by-State Guide to Taxes on Retirees

New Jersey

Add to State Compare List | View List
(0) selected | Compare up to 5

The Bottom Line
Map of New Jersey

Mixed Tax Picture

The Garden State has been taking big steps to reduce its tax burden on retirees. It does not tax Social Security benefits or military pensions. And a law passed in 2016 lets seniors may also qualify to exclude part of their retirement income from state income taxes. By 2020, a couple filing jointly, with an income of $100,000c, could exclude all of that. To top that off, the estate tax is being phased out. What's keeping New Jersey from being a retirement idyll? Stubbornly high property taxes -- the highest in the country, in fact.

State Sales Tax

State levy is 7%. A reduced rate of 3.5% is charged on in-person sales in designated Urban Enterprise Zones, located in disadvantaged areas. Salem County, which borders no-tax Delaware, also charges the reduced 3.5% rate. Notably, motor vehicles, alcohol and cigarettes are charged at the regular rate in these locations. Most clothing and footwear are tax-exempt across the state.

Income Tax Range

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

High: 8.97% (on taxable income over $500,000). New Jersey allows localities to impose an income tax; the average levy is 0.5%, per the Tax Foundation.

Effective income tax rate: 2.1% individual, 3.6/joint

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Railroad Retirement benefits and military pensions are not taxable. Residents 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 $40,000 in 2017. If you file as single, head of household, or qualifying widow or widower, you may exclude up to $30,000 in 2017. If you are married and file a separate return, you may exclude up to $20,000 in 2017. Those amounts will gradually rise so that by 2020 joint filers can exclude up to $100,000; single filers, up to $75,000; and married filing separately, up to $50,000.

IRAs

Qualifies for pension exemption.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Qualifies for pension exemption.

Private Pensions

Qualifies for pension exemption.

Public Pensions

Qualifies for pension exemption. Military pensions are not taxable.

Property Taxes

The median property tax on New Jersey's median home value of $313,200 is $7,452.

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 certain limits (for 2016, $87,007).

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.

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 certain beneficiaries of real and personal property that has a total value of $500 or more. No tax is imposed on transfers to parents, grandparents, descendants, children and their descendants, spouses, civil union partners, domestic partners or charities. There is a $25,000 exemption per Class C beneficiary (siblings, sons-in-law and daughters-in-law).

New Jersey's estate tax, currently levied on estates that exceed $2 million not passing to a spouse or civil union partner, will disappear at the end of 2017. 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. However, any inheritance tax due is taken as a credit against any estate tax.