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 source, you will not owe state income tax to New Jersey on those payments, regardless of how much you receive.

However, the federal government may tax your Social Security benefits depending on your total income. New Jersey's exemption applies only to state taxes. You still need to understand federal rules, because they determine whether you file a federal return and how much of your benefit is taxable at the national level.

Key Takeaways

  • New Jersey does not tax Social Security income at the state level, so you owe no state tax on those benefits.
  • The federal government may tax your Social Security benefits if your combined income exceeds certain thresholds, even though New Jersey does not.
  • Combined income includes your Social Security benefits plus half of those benefits plus other income like wages, pensions, and interest.
  • If you have income from sources other than Social Security, you may still owe New Jersey state income tax on that non-Social Security income.

How the federal government taxes Social Security

The IRS uses a calculation called combined income to decide whether your Social Security is taxable. Combined income is the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits. The IRS then compares this total to two thresholds.

If you file as single and your combined income is between $25,000 and $34,000, you may owe federal tax on up to 50 percent of your benefits. If your combined income exceeds $34,000, you may owe federal tax on up to 85 percent of your benefits. 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 the taxable range each year as incomes rise. If your combined income is below the first threshold for your filing status, none of your Social Security is taxable at the federal level.

What counts as income for the combined income calculation

Combined income includes wages from work, self-employment income, pensions, interest, dividends, capital gains, and rental income. It also includes income from retirement accounts like traditional IRAs and 401(k)s if you withdraw money. Roth IRA withdrawals do not count toward combined income, but the earnings portion of a Roth conversion does.

The calculation deliberately includes half of your Social Security benefit itself. This means even if you have no other income, a large Social Security benefit can push you into the taxable range. For example, a single person with $20,000 in Social Security and $5,000 in pension income has a combined income of $25,000 ($5,000 + $10,000 + $10,000), which is exactly at the first threshold.

New Jersey taxes on other retirement income

While New Jersey exempts Social Security, the state does tax other forms of retirement income. If you receive a pension from a government or private employer, New Jersey taxes that income as regular income. The same applies to distributions from traditional IRAs, 401(k)s, and other tax-deferred retirement accounts.

New Jersey does offer a pension exclusion for certain retirees. If you are age 62 or older and your income falls below a threshold, you may exclude up to $20,000 of pension or retirement income from state taxation. The income limits and exact rules depend on your age and filing status, so you should review the current rules on the New Jersey Division of Taxation website or consult a tax professional.

When you need to file a federal return

You must file a federal tax return if your gross income exceeds the standard deduction for your age and filing status. For 2024, the standard deduction is $14,600 for single filers age 65 and older, and $29,200 for married couples filing jointly where both are age 65 and older. Social Security counts toward this threshold.

Even if you do not owe federal tax, filing a return may be worth doing if you paid federal income tax through withholding on your Social Security benefits or other income. The IRS can only refund overpaid taxes if you file. Additionally, if you have self-employment income of $400 or more, you must file regardless of your total income.

How to report Social Security on your tax return

Social Security benefits are reported on IRS Form 1040 using Schedule 1. You will receive a Form SSA-1099 from the Social Security Administration by January 31 each year showing the total benefits you received. This form shows the gross amount before any federal income tax withholding.

If federal tax was withheld from your benefits, that withholding appears on the SSA-1099 as well. You enter your Social Security income on the appropriate line of your federal return, and the IRS calculates whether any portion is taxable based on your combined income. You do not report Social Security income on your New Jersey state return because it is exempt.

Withholding taxes from your Social Security payments

You can request that the Social Security Administration withhold federal income tax from your monthly benefit payment. This is useful if you know some of your benefits will be taxable and you want to avoid a large tax bill at filing time. You request withholding by completing Form W-4V and submitting it to your local Social Security office or online through your my Social Security account.

You can choose to have 7 percent, 10 percent, 12 percent, or 22 percent of your benefit withheld, or you can specify a dollar amount. If you change your mind, you can adjust or stop withholding at any time. Withholding does not reduce the amount of Social Security you actually receive for benefit purposes — it only affects your tax liability.

Frequently Asked Questions

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

No. New Jersey does not tax Social Security benefits, so if that is your only income source, you will not owe state income tax. You may still owe federal tax depending on the amount of your benefit, but New Jersey has no state tax on Social Security.

What if I have both Social Security and a pension?

New Jersey taxes the pension income but not the Social Security. You will owe state tax on the pension portion of your income. The combined income calculation for federal purposes includes both, so you may owe federal tax on part of your Social Security if your total combined income is high enough.

Do I have to file a New Jersey state tax return if I only receive Social Security?

Not necessarily. New Jersey requires you to file only if your income exceeds the state's filing threshold. Since Social Security is exempt, you would file only if you have other income that pushes you above the threshold. Check the New Jersey Division of Taxation website for current income limits based on your age and filing status.

Can I reduce my federal tax on Social Security by moving to New Jersey?

No. Federal tax on Social Security is determined by IRS rules and applies everywhere in the United States. Moving to New Jersey saves you state tax on Social Security, but it does not change your federal tax liability. The federal thresholds and calculation remain the same regardless of where you live.

What happens if I work and receive Social Security at the same time?

Your wages count as income for the combined income calculation, which may push more of your Social Security into the taxable range. Additionally, if you are under full retirement age and earn above a certain amount, Social Security will reduce your monthly benefit. Once you reach full retirement age, there is no earnings limit, but the income still affects your federal tax.