The Internal Revenue Service taxes Social Security benefits if the retiree exceeds a certain income. Individual filers can make $25,000 with no taxation of Social Security benefits; for joint filers, taxation starts at $32,000. At this level, the IRS can tax up to 50 percent of Social Security retirement benefits, based on calculation of combined income, not adjusted gross income. The federal taxation of Social Security retirement benefits by the IRS occurs in any state, including New Jersey.
Although New Jersey has a reputation for having some of the highest taxes in the nation, it does not tax Social Security retirement benefits as of 2010, according to the State of New Jersey Department of the Treasury website. States have some freedom with taxation of Social Security retirement income, but there are restrictions on taxation of military retirement. The state legislature determines whether the state chooses to tax Social Security retirement benefits.
Social Security provides more than retirement benefits. It provides disability and survivors' benefits as well. The IRS taxes Social Security disability payments the same as retirement benefits -- based on combined income calculations. New Jersey does not tax Social Security disability payments before age 65, according to the Retirement Living website. New Jersey taxes as ordinary income a permanent disability pension that extends past age 65.
You should not consider survivors benefits in determining whether you must file a New Jersey tax return. New Jersey does not tax these types of Social Security benefits as of 2010, according to the State of New Jersey Department of the Treasury website.
New Jersey provides a tax exclusion for those who cannot qualify for Social Security or Railroad Retirement benefits. It also excludes payment of income taxes on Tier 1 and Tier 2 Federal Railroad Retirement Benefits. A pension exclusion is available for those whose income is under $100,000 annually. This provision in New Jersey tax law allows a certain amount of pension benefits to be excluded from income. Single filers who claim New Jersey as their domicile can make $10,000 from all sources without filing a New Jersey tax return; married-filing-jointly status requires filing a state tax return when income is above $20,000.
Although this state has the highest per capita property tax in the nation, it has some tax relief for seniors apart from not taxing Social Security benefits. The primary residence homestead rebate applies to seniors over age 65 who make less than $150,000, reports the Top Retirement website. Seniors with incomes less than $80,000 may qualify for a property tax reimbursement. New Jersey has an extra exemption for seniors over age 65 as well, according to the instructions for the state income tax Form NJ-1040.
- State of New Jersey: Department of the Treasury - Frequently Asked Questions
- Kiplinger: Retiree Tax Heavens (and Hells)
- Retirement Living: Taxes by State
- Top Retirements.com: Best New Jersey Retirement Communities
- Social Security Online: Paying Income Tax on Social Security Benefits
- State of New Jersey: Department of the Treasury: NJ Income Tax -- Nontaxable Income