Today TaxMama hears from Andre in New Jersey who tells us, “My dad died last year and he left some money to me and my two siblings. He worked for the State of Illinois and it’s from a deferred compensation plan. Is the money taxable in New Jersey (where I live)?”
Let’s look up the pension information in a report by the National Conference of State Legislatures http://www.ncsl.org/programs/fiscal/pitaxret07.htm
New Jersey has an exclusion for a certain amount of pension income – regardless of the source.
Another interesting thing, ten states exclude all federal, state and local pensions. I won’t read them to you here, but you can find them in the report.
Incidentally, there was a bill passed by Congress a while back that precluded states from taxing the pensions of folks who are no longer residents of their states. Let me see if I can track this down for you.
OK, Fred Jacobs, an AARP Tax-Aide volunteer in New York found a link to this interesting explanation and analysis of P.L. 104-95, signed into law in 1996 http://pmstax.com/ftp/state/bull9602.pdf by Pillsbury, Madison and Sutro, LLC.
PM and S talk about the history of the law. It surprised me to read that Nevada was behind the legislation, since they wanted to protect their residents from other states’ taxes. That’s pretty smart politics. Why wasn’t Florida a mover behind this, considering their retiree population? Hmmm…
It was clearly a reaction to states like California and New York that aggressively pursue former residents, to tax them on pensions and other income sourced in their states. As if, once a California or New York resident, you’ll always be within their tax reach. Spooky.
Barry Hoggood a Virginia retiree sent us an interesting link to RetirementLiving.com’s pages where you can look up the financial considerations of retiring in any given state. http://www.retirementliving.com/RLtaxes.html It seems the retired folks are very up on tax laws affecting them. Thanks guys!
And remember, you can find answers to all kinds of questions about taxing sourced income and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
- Ask TaxMama :: Where taxes are fun and answers are free
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- Pillsbury, Madison and Sutro, LLC. :: Federal Statute Now Prohibits State Income Taxation of Certain Pension Income of Nonresidents
- National Conference of State Legislatures :: State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2007
- RetirementLiving.com :: Taxes by State – covers all kinds of taxes in that state