New Jersey does not tax Social Security benefits

New Jersey is one of the states that does not impose income tax on Social Security retirement, survivor, or disability benefits. If Social Security is your only income, you will not owe New Jersey state income tax on those payments, regardless of how much you receive.

However, the federal government may tax your Social Security benefits depending on your total income. This is separate from New Jersey's rules. You could owe federal tax while owing nothing to New Jersey, or vice versa. The two tax systems work independently.

Key Takeaways

  • New Jersey does not tax Social Security income at the state level, even if you receive a large benefit amount.
  • Federal tax on Social Security depends on your "combined income," which includes wages, pensions, and half of your Social Security benefits.
  • If your combined income exceeds $25,000 as a single filer or $32,000 as a married couple filing jointly, up to 85 percent of your Social Security may be taxable federally.
  • You may need to file a federal return even if you owe no New Jersey tax, depending on your total income from all sources.
  • Withdrawals from retirement accounts like IRAs and 401(k)s count toward your combined income and can push you into federal taxation of Social Security.

How federal taxation of Social Security works

The federal government uses a formula based on your combined income to decide whether your Social Security is taxable. Combined income is calculated as your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

If you are single and your combined income is between $25,000 and $34,000, up to 50 percent of your benefits may be taxable. If your combined income exceeds $34,000, up to 85 percent of your benefits may be taxable. For married couples filing jointly, the thresholds are $32,000 and $44,000.

These thresholds have not changed since 1984, so more people fall into taxable ranges each year as incomes rise. Even modest retirement income from pensions, part-time work, or IRA withdrawals can push you over the limit.

What counts toward your combined income

Combined income includes wages from employment, self-employment income, interest and dividends, capital gains, rental income, and distributions from traditional IRAs and 401(k) plans. It also includes half of your Social Security benefits themselves.

Certain income does not count: Roth IRA distributions do not count, nor do municipal bond interest or some other tax-exempt interest. However, these exceptions are narrow. Most retirement income sources will push your combined income higher.

If you are still working while receiving Social Security before your full retirement age, your wages count toward combined income. This is a common reason people find themselves owing federal tax on benefits they did not expect to be taxable.

Filing requirements when you receive Social Security

You must file a federal tax return if your gross income meets the threshold for your filing status, even if you owe no New Jersey tax. For 2024, a single person with gross income of $14,600 or more must file. For married couples filing jointly, the threshold is $29,200.

Social Security benefits count toward this threshold. If you receive $15,000 in Social Security and $2,000 in interest, your gross income is $17,000, which exceeds the single filer threshold. You would need to file a federal return even though New Jersey would not tax you.

You do not need to file a New Jersey return if your income is below New Jersey's threshold, which is higher than the federal threshold. However, you should still file federally to report your Social Security income and determine whether any portion is taxable.

How to report Social Security on your tax return

The Social Security Administration sends you a Form SSA-1099 each January showing your total benefits for the previous year. You use this form to report your benefits on your federal tax return, line 5a of Form 1040.

On line 5b, you enter the taxable portion of your benefits, which you calculate using a worksheet in the federal tax instructions or using tax software. The calculation is complex because it depends on your combined income, which itself includes half your benefits.

If you receive benefits from multiple sources—such as your own retirement and a spouse's or ex-spouse's record—you will receive multiple SSA-1099 forms. Add all benefits together when calculating your combined income.

Strategies to reduce federal taxation of Social Security

One approach is to time large income events. If you are considering a large IRA withdrawal or selling an investment, doing so in a year when you have lower other income may keep your combined income below the federal thresholds. This requires planning with a tax professional.

Converting a traditional IRA to a Roth IRA creates a one-time tax bill but removes future distributions from your combined income calculation. This can lower your taxable Social Security in retirement years. The conversion itself counts as income in the year you do it, so timing matters.

Delaying Social Security past your full retirement age increases your monthly benefit and may allow you to work longer before claiming, reducing the years when you have both wages and benefits. Each year you delay past full retirement age, your benefit increases by about 8 percent.

New Jersey tax credits and deductions for retirees

New Jersey offers a Earned Income Tax Credit for low-income workers, but Social Security is not considered earned income, so this credit does not explore to Social Security recipients. However, if you have wages or self-employment income in addition to Social Security, you may may have access to.

New Jersey also allows a deduction for pension and retirement income under certain conditions. If you receive a pension from a New Jersey public employee system or a federal, state, or local government, you may deduct up to $100,000 of that income if you meet age and income requirements. Social Security does not may have access to for this deduction.

Property tax relief programs in New Jersey may help reduce your overall tax burden if you own a home and meet income limits. These programs are separate from income tax and may be worth investigating if your total income is modest.

Frequently Asked Questions

Will I owe New Jersey tax if Social Security is my only income?

No. New Jersey does not tax Social Security benefits under any circumstances. If Social Security is your only income source, you will not owe New Jersey state income tax, no matter how much you receive monthly.

Can I owe federal tax on Social Security but no New Jersey tax?

Yes. New Jersey's decision not to tax Social Security is separate from federal rules. You could owe federal tax on a portion of your benefits while owing nothing to New Jersey. You must file a federal return if your income meets the federal threshold, even if you owe no state tax.

Does my IRA withdrawal affect whether my Social Security is taxed?

Yes. IRA withdrawals count toward your combined income, which determines whether your Social Security is taxable federally. A $10,000 IRA withdrawal could push you over the federal threshold and make 50 or 85 percent of your Social Security taxable, even though New Jersey ignores both the withdrawal and the benefits.

What if I worked while receiving Social Security?

Your wages count toward combined income for federal tax purposes. If you earned $20,000 and received $18,000 in Social Security, your combined income could exceed the federal threshold, making your benefits partially taxable. New Jersey still would not tax the benefits, but the federal government would.

Do I need to file a New Jersey return if I file a federal return?

Not necessarily. New Jersey's income threshold is higher than the federal threshold. You may need to file a federal return but not a New Jersey return. Check New Jersey's current income limits for your filing status to be sure, as they change annually.