If you earn too much for the pension exclusion

The New Jersey pension exclusion has a strict income cutoff.(pixabay.com)

Q. If my annual New Jersey pension is $106,000 and will continue for my life, is there any way I can reduce New Jersey gross income to take advantage of the pension exclusion? Or will I never qualify? -- Paying too much

A. In 2016, legislators increased the gasoline tax.

That bill had a number of other items tacked onto it.

Among then was a new $3,000 tax deduction for all veterans who have had an Honorable Discharge from the armed forces, National Guard or Reserves.

Another was an increase to the New Jersey pension exclusion.

The pension exclusion is available if you are 62 or older, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

For 2017, those married filing jointly can exclude $40,000 of income, and that goes up $20,000 a year until it reaches $100,000 in 2020.

For singles, $30,000 can be excluded for 2017, and that amount maxes out at $75,000 in 2020.

Those married filing separately can exclude $20,000 in 2017. That will increase by $10,000 a year until it reaches the $50,000 maximum in 2020.

"If your income is one dollar more than $100,000 you get zero pension exclusion," Kiely said. "It is not phased out - it is simply gone."

He said when you calculate your New Jersey gross income, be sure to exclude Social Security income because New Jersey doesn't tax it. There isn't even a line on the New Jersey tax form for Social Security, he said.

You said your pension was $106,000 every year for life.

Kiely said in 2017, your state income tax would have been $2,621, assuming you are married and both of you are over 62. If your pension income were $100,000, your state income tax would have been only $953 -- $1,668 less.

"Every year as the pension exclusion goes up, your state tax would go down. By 2020 your state tax would be zero," Kiely said. "So the $6,000 in additional pension income will ultimately cost you $2,621. You are still ahead by $3,379."

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com's weekly e-newsletter.