NJ Income Tax – Exempt (Nontaxable) Income

Certain items of income are not subject to New Jersey tax and should not be included when you file a New Jersey return. Below is a partial list of such items.

• Social Security benefits;
• Railroad Retirement benefits (both Tier 1 and Tier 2);
• United States military pensions and survivor's benefit payments;

• Permanent and total disability, including VA benefits;

• Temporary disability benefits (including family leave insurance benefits) received from the State of New Jersey or as third-party sick pay;
• Unemployment compensation;
• Workers' compensation;
• Gifts and inheritances;
• Homestead Benefits;
• Senior Freeze (Property Tax Reimbursement) payments;
• Income Tax refunds (New Jersey, federal, and other jurisdictions), including Earned Income Tax Credit payments;
• New Jersey Lottery winnings from prizes of $10,000 or less;

• Child support payments;
• Qualifying scholarships or fellowship grants;
• Contributions to and distributions from Archer MSAs if they are excluded for federal income tax purposes;

• Welfare payments;
• Assistance from a charitable organization whether in the form of cash or property;

• Some benefits received from certain employer-provided cafeteria plans (but not salary reduction or premium conversion plans). See Technical Bulletin TB-39 170 kb;
• Benefits received from certain employer-provided commuter transportation benefit plans (but not salary reduction plans). See Technical Bulletin TB-24R 177 kb;
• Earnings on qualified distributions from qualified state tuition program accounts, including the New Jersey Better Educational Savings Trust program (NJBEST) accounts;
• Earnings on qualified distributions from qualified state 529A Achieving a Better Life Experience program (ABLE) accounts;

• Life insurance proceeds received because of a person's death;

• Employee's death benefits;
• Amounts paid as reparations or restitution to Nazi Holocaust victims;
• Cancellation of debt;
• Amounts received as damages for wrongful imprisonment;
• Qualified disaster relief payments excluded under IRC §139;
• Payments from the September 11th Victim Compensation Fund.

The following items of income are not subject to New Jersey tax. However, if you file a resident return, you must report the total amount of nontaxable interest on the "Tax exempt interest" Line of your return:

• The portion of a distribution from a New Jersey Qualified Investment Funds; and
• Interest and capital gains from obligations of the State of New Jersey or any of its political subdivisions or from direct federal obligations, such as U.S. Savings Bonds and U.S. Treasury Bills, Bonds, and Notes.

For more information on exempt (nontaxable) income, see the section on income in the tax return instructions 1.06 mb.

More information about exempt obligations is available in Tax Topic Bulletin GIT-5 445 kb, Exempt Obligations.