New Jersey has a reputation as a high-tax state for retirees. On income, that reputation is largely wrong. New Jersey does not tax Social Security at all, and it excludes a great deal of pension and retirement income for people over 62. What it does have is a cliff at $150,000 of income that can cost a household thousands of dollars for one extra dollar of income.
On this page
- Social Security is not taxed. Not partly. At all.
- The Pension and Retirement Income Exclusion
- Above $100,000 the exclusion changes shape, and this is what gets missed
- Which accounts qualify, and which are treated differently
- Your IRA is partly tax-free in New Jersey
- Contributory pensions: the Three-Year Rule and the General Rule
- Income tax rates
- The three property tax programs, and how they interact
- Estate and inheritance tax, briefly
What New Jersey does not tax
Social Security is not taxed. Not partly. At all.
New Jersey exempts all payments received under the federal Social Security Act. There is no provisional income calculation, no 50% or 85% inclusion, and no income level at which it starts being taxed. Railroad Retirement benefits are also not taxable.
This is a genuine difference from your federal return, where up to 85% of Social Security can be taxable. The same benefit is treated completely differently on the two returns.
The Pension and Retirement Income Exclusion
If you are 62 or older on the last day of the tax year, or disabled under Social Security guidelines, you may exclude retirement income up to these amounts, provided your total income is $100,000 or less.
| Filing status | Maximum exclusion |
|---|---|
| Married or civil union couple, filing jointly | $100,000 |
| Single, head of household, or qualifying widow or widower | $75,000 |
| Married or civil union partner, filing separately | $50,000 |
These figures are set in statute and are not indexed to inflation. They have been unchanged since tax year 2020.
Exclusions and which accounts qualify
Above $100,000 the exclusion changes shape, and this is what gets missed
Between $100,001 and $150,000 of total income, the exclusion stops being a dollar cap and becomes a percentage of your taxable pension, annuity, and IRA income.
| Total income | Married filing jointly | Single or head of household | Married filing separately |
|---|---|---|---|
| $100,000 or less | $100,000 | $75,000 | $50,000 |
| $100,001 to $125,000 | 50% of retirement income | 37.5% | 25% |
| $125,001 to $150,000 | 25% of retirement income | 18.75% | 12.5% |
| Over $150,000 | Nothing | Nothing | Nothing |
Three things follow from that table, and each one matters.
- Total income means all of your income, not just your retirement income. Wages, interest, dividends, capital gains, and rental income all count toward pushing you over each threshold. Social Security does not count, because it is not New Jersey income in the first place.
- $150,000 is a cliff, not a slope. A married couple at exactly $150,000 excludes 25% of their pension income. At $150,001 they exclude nothing. One dollar of additional income can trigger several thousand dollars of additional tax.
- In the percentage bands the exclusion applies to your actual retirement income, so it can be larger than a naive reading suggests. A couple at $120,000 of total income with $110,000 of pension income excludes 50% of $110,000, which is $55,000.
If your income lands anywhere near $150,000, the timing of a capital gain, a Roth conversion, or an extra IRA withdrawal is worth modeling before you act rather than after.
Rather go through this with your own numbers? We can cover it in a short conversation, at no charge and with no obligation. Book your Retirement Review
Which accounts qualify, and which are treated differently
The exclusion covers taxable distributions from pensions and annuities, traditional and Roth IRAs, and 401(k), 403(b), 457, and Keogh plans. State, local government, teachers’, and federal pensions are treated the same as private sector pensions. There is no public or private distinction.
Several categories sit outside that framework entirely.
- Military pensions and survivor’s benefit payments are fully exempt from New Jersey tax, at any age, regardless of disability status. They are not reported on the return at all and do not consume any part of your exclusion.
- Federal civil service pensions based on military service credit are taxable. This one catches people. Service credit does not make a civil service pension a military pension.
- Disability pension payments before age 65 are not taxable, and then become taxable at 65 as ordinary pension income. A disability pensioner’s New Jersey tax bill can jump in the year they turn 65.
- Nonresidents pay no New Jersey tax on pension, annuity, or IRA income, which matters if you are weighing a move.
Your IRA is partly tax-free in New Jersey
New Jersey never allowed a deduction for IRA contributions. Your contributions were taxed by New Jersey in the year you made them, for both traditional and Roth IRAs.
The consequence is that those contributions are your New Jersey basis and are not taxed again when you withdraw. Only the earnings are taxable. So an IRA withdrawal that is 100% taxable on your federal return is only partly taxable on your New Jersey return.
The practical obstacle is records. The calculation requires knowing your total New Jersey-taxed contributions and the year-end value of all your IRAs, tracked across every withdrawal year. If you cannot substantiate the basis, you effectively lose it and pay New Jersey tax on the full amount. If you have been contributing to an IRA for thirty years, finding those records is worth real money.
One caution: amounts rolled into an IRA from an employer plan generally do not carry New Jersey basis. A 401(k) rollover does not create excludable contributions.
Contributory pensions: the Three-Year Rule and the General Rule
If you contributed to your own pension, part of each payment is a return of money already taxed. New Jersey recovers it one of two ways.
- Three-Year Rule. All payments are excluded until they equal what you contributed. Available if you will recover your contributions within 36 months of the first payment and your employer also contributed to the plan.
- General Rule. A portion of every payment is excluded across the life of the payments. Used if you will not recover your contributions within 36 months, or if your employer did not contribute.
Rates, property tax and death taxes
Income tax rates
Married and civil union couples filing jointly, and heads of household:
| Taxable income | Rate |
|---|---|
| $0 to $20,000 | 1.4% |
| $20,001 to $50,000 | 1.75% |
| $50,001 to $70,000 | 2.45% |
| $70,001 to $80,000 | 3.5% |
| $80,001 to $150,000 | 5.525% |
| $150,001 to $500,000 | 6.37% |
| $500,001 to $1,000,000 | 8.97% |
| Over $1,000,000 | 10.75% |
Single filers and those married filing separately reach 5.525% at $40,001 and 6.37% at $75,001, with the same top rates. These brackets are not indexed and have applied since tax year 2020.
A North Jersey retired couple with $120,000 of New Jersey taxable income sits in the 5.525% bracket. Income tax is one part of what makes New Jersey expensive. Property tax is.
The three property tax programs, and how they interact
All three are now applied for through a single combined application, Form PAS-1. Homeowners 65 and older, and those receiving Social Security or Railroad Retirement disability benefits, must file it themselves. Younger homeowners and most renters are filed automatically by the State.
ANCHOR
Open to all ages. Homeowners with income of $250,000 or less receive $1,500, or $1,000 if income is between $150,001 and $250,000. Renters with income of $150,000 or less receive $450, or $700 if 65 or older. The age bonus applies to renters, not to homeowners.
Senior Freeze
Requires age 65 or older, or receipt of federal disability benefits. You must have owned and lived in the home since December 31, 2022 or earlier. Income limits are adjusted annually and both years must be met. These limits change every year, so confirm the current figures rather than relying on a number you remember.
Stay NJ
Stay NJ is live and paying benefits. It requires age 65 or older, full-year ownership and occupancy, and income of $200,000 or less. Renters and mobile home owners are not eligible. The benefit is 50% of property taxes, capped at $6,500 for income up to $100,000, $5,000 up to $150,000, and $4,000 up to $200,000.
The way the three programs combine is widely misunderstood. Stay NJ is a top-up, not a fourth check. ANCHOR and Senior Freeze are calculated first. If their combined total is less than 50% of your property taxes, Stay NJ pays the difference up to the cap. If they already exceed 50%, Stay NJ adds nothing.
Stay NJ’s income limit and benefit caps are set in each annual State budget and have already changed once. Treat them as current-year figures rather than as a permanent entitlement, and confirm them before relying on them.
Estate and inheritance tax, briefly
New Jersey has no estate tax for anyone dying on or after January 1, 2018. It does still have an inheritance tax, which works by the beneficiary’s relationship to the person who died rather than by the size of the estate. Spouses, children, grandchildren, parents, and grandparents pay nothing. Siblings, nieces, nephews, and friends can pay a great deal. That is covered on its own page.
Sources for this page: New Jersey Division of Taxation publications GIT-1 and GIT-2, Pensions and Annuities and Retirement Income (January 2026) and GIT-7, Military Personnel and Families (January 2026); the 2025 NJ-1040 instructions; the Division’s Retirement Income and Retirement Income Exclusions pages; the New Jersey Tax Rate Schedules; N.J.S.A. 54A:6-2 and 54A:6-10; and the Division’s ANCHOR, Senior Freeze, Stay NJ, and Inheritance and Estate Tax pages. Exclusion amounts and brackets are stated for tax year 2025. Senior Freeze income limits and Stay NJ terms change annually. This page is general information about how the rules work and is not tax advice about your situation.
Calculator. Check whether you are over the $150,000 pension exclusion cliff. It uses published figures and names its source.
This page is general. Your situation is not.
The Pension and Retirement Income Exclusion changes shape above $100,000 of total income and disappears above $150,000, which makes the order you draw from accounts worth arranging before a year begins rather than during it. We can cover it in a short conversation, at no charge and with no obligation.
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