Social Security income is not taxed by New Jersey, but it may be taxed by the federal government

New Jersey does not tax Social Security benefits at the state level. This means you will not owe New Jersey income tax on the money you receive from Social Security, regardless of how much you get or what other income you have. However, the federal government may tax your benefits depending on your total income for the year.

Whether your benefits are taxed federally depends on a calculation called combined income. This is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If your combined income exceeds certain thresholds set by the IRS, you may owe federal tax on a portion of your benefits.

Key Takeaways

  • New Jersey has no state income tax on Social Security benefits, so you will never owe the state money on this income.
  • Federal tax on Social Security depends on your combined income, which includes half of your benefits plus other income sources.
  • Single filers with combined income over $25,000 and married filers over $32,000 may owe federal tax on up to 85% of their benefits.
  • You can request that the Social Security Administration withhold federal taxes from your monthly payment to avoid a tax bill at the end of the year.
  • Your other income sources — pensions, interest, wages, rental income — all count toward the thresholds that determine whether your benefits are taxed.

Federal tax thresholds for Social Security benefits

The IRS uses income brackets to decide how much of your Social Security is taxable. For 2024, if you are single and your combined income is between $25,000 and $34,000, you may owe federal tax on up to 50% of your benefits. If your combined income is over $34,000, you may owe tax on up to 85% of your benefits.

If you are married and file jointly, the thresholds are higher: between $32,000 and $44,000 triggers the 50% rule, and over $44,000 triggers the 85% rule. If you are married and file separately, you are almost always taxed on your benefits unless your combined income is zero.

These thresholds do not change year to year with inflation, so more people may find themselves owing federal tax on benefits as their other income grows. The IRS publishes a worksheet each year to help you calculate whether you owe tax, and the Social Security Administration provides a tax estimator on its website.

What counts as income for the tax calculation

Combined income includes more than just your salary. It counts wages, self-employment income, pensions, interest from savings accounts and bonds, dividends, capital gains, rental income, and income from annuities. It also includes nontaxable interest from municipal bonds, which many people forget to include.

Certain income does not count: Supplemental Security Income (SSI), Veteran's benefits, and workers' compensation do not factor into the combined income calculation. If you are still working and earning wages, those wages are included in full.

If you have a spouse who also receives Social Security, you each calculate your own combined income separately. Your spouse's income does not affect your tax situation unless you file a joint return, in which case you combine all income sources for both of you.

How to request federal tax withholding from your benefits

You can ask the Social Security Administration to withhold federal income tax from your monthly benefit payment. This is done using Form W-4V, which you can complete online, by mail, or in person at your local Social Security office.

When you complete the form, you choose a withholding amount: 7%, 10%, 15%, or 20% of your monthly benefit. The withheld amount goes directly to the IRS and counts toward your annual federal tax obligation. This approach helps you avoid owing a large tax bill when you file your return.

You can change your withholding at any time by submitting a new Form W-4V. If you want to stop withholding, you can do that too. The form takes effect the month after you submit it.

Planning ahead if you have other income sources

If you have a pension, rental property, investment accounts, or part-time work, those income sources push you closer to the thresholds where your benefits become taxable. Some people find it helpful to track their income throughout the year so they know whether they will owe federal tax.

If you are still working and earning significant wages, your combined income will likely be high enough to trigger taxation on your benefits. Delaying Social Security until you stop working, or until your other income drops, can reduce the amount of your benefits that are taxed.

If you receive a large capital gain in one year — from selling a house or investment — that single year may push you over the threshold. In that case, you might owe federal tax on your benefits only that year, not in other years.

Filing your federal tax return in New Jersey

Even though New Jersey does not tax Social Security, you still file your federal return with the IRS if you owe federal tax on your benefits. You report your Social Security income on Form 1040, and the IRS provides a worksheet to calculate how much of your benefits are taxable.

If you had federal tax withheld from your benefits during the year, that amount is credited against your total federal tax bill. If you withheld more than you owe, you receive a refund. If you withheld less, you owe the difference when you file.

You do not file a New Jersey state return for Social Security income, but you may need to file one if you have other income sources that are subject to New Jersey tax — such as wages, pensions, or rental income. New Jersey has income tax on those sources, even though Social Security is exempt.

Frequently Asked Questions

Do I have to pay New Jersey tax on my Social Security?

No. New Jersey does not tax Social Security benefits at any income level. You will never owe New Jersey income tax on your Social Security payments, even if you have other income or live in the state year-round.

What if I live in New Jersey but worked in another state — is my Social Security still tax-free in New Jersey?

Yes. Your Social Security is tax-free in New Jersey regardless of where you worked or where you live now. New Jersey's exemption applies to all Social Security recipients who live in the state.

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

No. Federal tax on Social Security is determined by the IRS, not by your state of residence. Moving to New Jersey saves you state tax on your benefits, but it does not change whether the federal government taxes them. The combined income thresholds and tax rules are the same everywhere.

If I have federal tax withheld from my Social Security, do I still file a federal return?

You file a federal return if you owe federal tax on your benefits or if your total income requires you to file. Withholding does not eliminate the need to file — it just prepays your tax. You file to report all your income and claim any deductions or credits you are may have access to to.

What happens if I underestimate my combined income and do not withhold enough?

If you owe more federal tax than was withheld, you pay the difference when you file your return. You can adjust your withholding on Form W-4V at any time if you realize you are not withholding enough. Increasing your withholding mid-year helps prevent a large bill the following year.