We’re retired. Will moving to Pennsylvania save us on taxes?

By Karin Price Mueller | NJMoneyHelp.com for NJ.com

Q. My husband and I are retired. We live in northern New Jersey, with its high property taxes. We were considering moving to Pennsylvania where we can save a great deal in property taxes. However, we have been told that Pennsylvania has a variety of other taxes that, when added up, greatly reduce the differential between the cost of living in New Jersey versus Pennsylvania. What do you think?

— Retired

A. You’re right that New Jersey has incredibly high property taxes.

In study after study, New Jersey is ranked No. 1 for the highest real estate taxes in the 50 states plus the District of Columbia.

One study said New Jersey real estate tax on a $205,000 home was $5,064 and the median was $8,104.

Pennsylvania, which ranked No. 41 in the study, had a home valued at $205,000 with property taxes of $3,257, while its median value home was taxed $2,767.

This doesn’t take into account that senior citizens aged 65 and over in New Jersey may be eligible for the Senior Freeze for 2019 if their income was $91,505 or less, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said New Jersey’s sales tax rate in 2020 is 6.625%. Pennsylvania’s sales tax rate is 6%. With local sales tax included, the total is between 6% and 8%, he said.

Now let’s consider income taxes.

New Jersey’s tax rates start at 1.4% and rise up to 10.75% for income over $5 million, Kiely said.

Pennsylvania has a single tax bracket of 3.07%.

“In New Jersey, a single person with over $35,000 in taxable income would be at the 3.5% tax rate,” he said. “For a couple they would have to have $70,000 in taxable income to be in the 3.5% tax bracket.”

You said you are retired. This means you are probably living on a combination of Social Security, pension income, IRA and 401(k) distribution plus interest and dividends.

Neither state taxes Social Security, Kiely said, while Pennsylvania does not tax pension, IRA or 401(k)-type income, Kiely said.

New Jersey also has a $6,000 veteran’s deduction, plus you can exclude up to $100,000 of pension income as long as your total New Jersey income is less than $100,000. If your income is $1 over $100,000 the pension exclusion is gone, he said.

If you are still working, there is a local tax in Pennsylvania on earned income.

“Earned income is salaries, wages and self-employment income,” he said. “The local tax rate is usually 1%, but Philadelphia’s earned income tax rate is 3.8809%. To the best of my knowledge, New Jersey does not have any local income taxes.”

There is no easy answer to your question without knowing all the details of your situation.

You should run the numbers with a New Jersey and a Pennsylvania income tax return and do the math.

Email your questions to Ask@NJMoneyHelp.com.

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.