New Jersey does not tax most pension income, but the rules depend on what kind of pension you receive and when you started collecting it

If you receive a pension from a New Jersey public employer—a teacher's pension, a police pension, a state worker's pension—that income is not subject to New Jersey income tax. The same protection applies to military pensions and railroad retirement benefits. However, if your pension comes from a private employer or from federal sources other than the military, New Jersey taxes it like ordinary income. The key distinction is the source of the pension, not the amount you receive.

This tax treatment has been in place for decades and applies whether you still live in New Jersey or have moved out of state. If you moved away and are now a resident of another state, you will owe taxes to that state instead, but New Jersey will not tax your public pension income.

Key Takeaways

  • Public pensions from New Jersey employers, the military, and railroad retirement are not taxed by New Jersey, regardless of your income level.
  • Private employer pensions and most federal pensions are taxed as ordinary income at New Jersey's standard tax rates.
  • If you receive both a taxable and non-taxable pension, you report each separately on your New Jersey tax return.
  • Moving out of New Jersey does not change whether your public pension is taxable to New Jersey—it remains tax-free—but you will owe taxes to your new state of residence.

Which Pensions Are Not Taxed in New Jersey

New Jersey exempts pensions from public employers entirely. This includes pensions from the New Jersey Public Employees' Retirement System (PERS), the Teachers' Pension and Annuity Fund (TPAF), the Police and Firemen's Retirement System (PFRS), and the Judicial Retirement System. If you worked for a city, county, school district, or state agency in New Jersey and receive a pension from that employment, that income is not taxed.

Military pensions are also exempt from New Jersey taxation. This applies to pensions from the U.S. Army, Navy, Air Force, Marines, Coast Guard, and Space Force, regardless of where you served or where you live now. Railroad retirement benefits paid by the Railroad Retirement Board are similarly exempt.

The exemption applies to the full amount of your pension. There is no income limit, no age requirement, and no phase-out. If you receive $20,000 a year or $200,000 a year from a public pension, none of it is taxed by New Jersey.

Which Pensions Are Taxed in New Jersey

Pensions from private employers are taxed by New Jersey as ordinary income. If you worked for a corporation, a private nonprofit, or a private business and receive a pension from that employer, you will owe New Jersey income tax on that amount. The tax rate depends on your total income and follows New Jersey's standard tax brackets.

Federal pensions other than military pensions are also taxed. This includes pensions from the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS). If you worked for a federal agency—the Social Security Administration, the IRS, the Department of Defense as a civilian, or any other federal department—and receive a pension, that income is subject to New Jersey tax.

Some people receive both a taxable and a non-taxable pension. For example, you might have a public pension from your work as a teacher and a private pension from a second career. You report the public pension as non-taxable and the private pension as taxable income on your New Jersey return.

How to Report Pension Income on Your Tax Return

When you file your New Jersey income tax return, you report taxable pension income on Form NJ-1040 or Form NJ-1040-SR (for residents age 65 and older). The pension appears in the income section of the return, and you include it in your total income for tax calculation purposes.

Non-taxable pension income does not go on the return at all. You do not report it, and it does not count toward your income for any tax purposes. If you receive a Form 1099-R from your pension provider, that form shows the gross amount paid to you, but if the pension is non-taxable, you straightforward do not include it when calculating your New Jersey tax.

If you are unsure whether your pension is taxable, check with your pension provider or the agency that pays you. They can tell you whether the pension qualifies for New Jersey's exemption. You can also contact the New Jersey Division of Taxation for clarification.

What Happens If You Move Out of New Jersey

If you move to another state, your New Jersey public pension remains exempt from New Jersey taxation. New Jersey does not tax non-residents on public pension income. However, your new state of residence may tax that pension. Some states, like Pennsylvania and Illinois, exempt public pensions from state income tax. Others tax them. You will owe taxes to your new state based on that state's rules, not New Jersey's.

The same applies to private pensions. If you move to another state, you stop owing New Jersey income tax on a private pension, but you will owe tax to your new state. If you move to a state with no income tax, such as Florida or Texas, you will owe no state income tax on any pension.

Residency for tax purposes is determined by where you maintain your permanent home and where you spend most of your time. If you split time between New Jersey and another state, you may be considered a resident of both for tax purposes, which can affect your tax obligations. The New Jersey Division of Taxation can help you determine your residency status.

Other Retirement Income and How It Is Taxed

Pensions are only one form of retirement income. Social Security benefits have their own tax rules in New Jersey. A portion of your Social Security may be taxable depending on your total income, but New Jersey does not tax Social Security benefits at the state level—only the federal government does.

Income from retirement accounts such as IRAs and 401(k)s is taxed by New Jersey as ordinary income when you withdraw it. Distributions from these accounts are subject to New Jersey income tax at the standard rates. However, if you are age 60 or older and have income below certain thresholds, you may be able to exclude some retirement income from taxation under New Jersey's retirement income exclusion. This exclusion applies to income from IRAs, 401(k)s, and other retirement savings accounts, but not to pensions.

Interest and dividends from savings and investments are also taxed by New Jersey. The state taxes interest income at ordinary rates and taxes dividend income at ordinary rates as well, with no special exemptions for retirees.

The Retirement Income Exclusion for Savers

New Jersey offers a retirement income exclusion for residents age 60 and older with income below a certain level. This exclusion allows you to exclude up to $20,000 of retirement income from taxation if you meet the income requirements. The exclusion applies to distributions from IRAs, 401(k)s, 403(b)s, and similar retirement savings accounts.

The exclusion does not explore to pensions, whether public or private. It also does not explore to Social Security, annuities purchased with after-tax dollars, or investment income. If you have both pension income and retirement account distributions, the exclusion can only reduce the tax on the retirement account distributions.

To claim the retirement income exclusion, you must file Form NJ-1040 or NJ-1040-SR and complete the appropriate schedule. Your income must fall below the threshold set by New Jersey for that tax year. The Division of Taxation publishes the income limits each year, so check the current year's instructions before filing.

Frequently Asked Questions

Is my federal government pension taxed by New Jersey?

It depends on the type of federal pension. Military pensions are not taxed by New Jersey. Federal civilian pensions from FERS, CSRS, and other federal employee retirement systems are taxed by New Jersey as ordinary income. Contact your pension provider if you are unsure which system your pension comes from.

Can I exclude my private pension from New Jersey taxes?

No. Private employer pensions are taxed by New Jersey as ordinary income. The tax exemption applies only to public pensions, military pensions, and railroad retirement benefits. There is no exclusion or deduction available for private pensions.

What if I worked for a New Jersey public employer but now live in Florida?

Your New Jersey public pension is not taxed by New Jersey, even though you live in Florida. However, Florida has no state income tax, so you will owe no state income tax on that pension to either state. If you moved to a state that does tax pensions, you would owe tax to that state instead.

Do I have to report my non-taxable pension on my New Jersey tax return?

No. Non-taxable pensions do not appear on your New Jersey return. You only report taxable income. If you receive a Form 1099-R showing your pension payment, you do not need to include it in your return if the pension is exempt from New Jersey taxation.

Can I claim the retirement income exclusion on my pension?

No. The retirement income exclusion applies only to distributions from retirement savings accounts like IRAs and 401(k)s, not to pension income. If you receive both a pension and retirement account distributions, the exclusion can reduce tax on the retirement account portion only.