One Dollar Over the Line: The Income Cliffs That Can Cost Retirees Thousands

Here is something nobody tells you when you retire: your income is no longer whatever your boss pays you. It is, to a surprising degree, a number you and your tax pro choose — which accounts you pull from, in what order, and how much.

That is the good news. The bad news is that three separate programs — New Jersey''s pension exclusion, the new federal senior deduction, and Medicare itself — draw lines across that number. Some of those lines are gentle slopes. Others are cliffs, where one extra dollar of income costs you far more than a dollar.

Let''s walk the tightrope. Plain English, real 2026 numbers, no jargon.

Cliff #1: New Jersey''s $150,000 pension exclusion

New Jersey lets residents who are 62 or older (or disabled) keep a big chunk of pension and retirement income out of state tax — up to $100,000 for a married couple filing jointly, $75,000 for a single filer. It is one of the most generous retiree tax breaks in the country.

But it comes with a trap door. The full exclusion is only available if your total income is $100,000 or less. Between $100,000 and $150,000 you get a partial exclusion — half of it up to $125,000, a quarter of it up to $150,000. And at $150,001?

Zero. The entire exclusion disappears. Not reduced — gone. A couple with $150,000 of income might exclude $15,000 of pension from New Jersey tax. Earn one dollar more, and that same couple excludes nothing at all. That single dollar can cost hundreds in state tax.

This is a true cliff, and it is the one that catches Central Jersey retirees with good pensions completely by surprise.

The fade, not a cliff: the federal $6,000 senior deduction

Starting with the 2025 tax year, Americans 65 and older get a new federal deduction of $6,000 per person — $12,000 for a couple where both spouses qualify — on top of the regular standard deduction. It runs through 2028.

This one phases out starting at $75,000 of income for single filers and $150,000 for joint filers. But here is the kinder part: it fades gradually rather than vanishing all at once. Go a little over the line and you lose a little of the deduction, not all of it.

Remember, it is a deduction, not a check. For someone in the 22% bracket, the full $6,000 deduction is worth about $1,320 in actual tax savings. Worth having — but not worth derailing your whole plan over.

Cliff #2: Medicare''s IRMAA surcharges

This is the cliff almost nobody sees coming, because it works on a two-year delay.

Medicare looks at the income on your tax return from two years ago — your 2024 return sets your 2026 premiums. If that income crosses a line, you pay a surcharge called IRMAA (the income-related monthly adjustment amount) on top of the standard premium. About 8% of people on Medicare pay it.

The standard 2026 Part B premium is $202.90 a month. Here is what happens as 2024 income climbs (single filer / married filing jointly):

• Up to $109,000 / $218,000: $202.90 a month — no surcharge
• Over $109,000 / $218,000: $284.10 a month
• Over $137,000 / $274,000: $405.80 a month
• Over $171,000 / $342,000: $527.50 a month
• Over $205,000 / $410,000: $649.20 a month
• $500,000+ / $750,000+: $689.90 a month

Look at that first step. One dollar over $218,000 for a couple, and each spouse pays an extra $81.20 a month — for all twelve months. That is roughly $1,950 a year for a couple where both are on Medicare, triggered by a single dollar. And there is a separate IRMAA surcharge on Part D drug coverage too.

One mercy: if your income dropped because of a life-changing event — retirement, death of a spouse, divorce — you can appeal the surcharge using Social Security form SSA-44 instead of waiting two years for the lower income to show up.

The trigger hiding behind all three: your RMDs

Now here is where it all connects. Starting at age 73, the IRS requires you to take required minimum distributions — RMDs — from your traditional IRAs and 401(k)s every year, whether you need the money or not. That withdrawal is taxable income, and it lands on top of your Social Security and pension.

For plenty of retirees, the RMD is the very thing that shoves them over one of these lines:

• It can push a New Jersey couple past $150,000 and wipe out the pension exclusion.
• It can shrink the federal senior deduction.
• And two years later, it can trigger an IRMAA surcharge on Medicare — which is why the first RMD year often produces a confusing letter from Social Security about higher premiums.

Two RMD wrinkles worth knowing. First, if you turn 73 in 2026, you may delay your very first RMD until April 1, 2027 — but then you must take your 2027 RMD by December 31, 2027 too. Two taxable withdrawals in one year can launch you over a cliff all by itself. Second, every annual RMD after that is due by December 31.

Five moves that keep you on the right side of the line

1. Know your number. Add up Social Security, pensions, RMDs, interest, dividends and capital gains. Compare it to the three lines: $150,000 (New Jersey), $75,000/$150,000 (senior deduction), and $109,000/$218,000 (IRMAA, remembering the two-year lag).
2. Give it away instead. If you are 70½ or older, a qualified charitable distribution sends IRA money straight to charity. It counts toward your RMD but never shows up in your income — the single cleanest tool for staying under a line.
3. Fill the gap years. The years between retiring and age 73 are golden: income is low, so converting some traditional IRA money to a Roth at those lower rates shrinks future RMDs before they can hurt you.
4. Think twice about the April 1 delay. Postponing a first RMD feels clever until two RMDs land in the same year and trip a surcharge.
5. Appeal when life changes. Retired? Widowed? If income dropped for a qualifying reason, file form SSA-44 rather than paying two years of surcharges you no longer deserve.

The bottom line

None of these cliffs are secret. They are just scattered across three different agencies that never talk to each other — and the bill arrives one or two years after the mistake, when it is too late to fix.

The retirees who dodge them are not richer or smarter. They simply look at their total income once a year, notice which line they are drifting toward, and adjust before December 31 instead of after the tax bill arrives.

If you want help seeing your own lines clearly, join us for our next Retirement Webinar: Setting the Stage for 2027 — we walk through exactly these decisions with real numbers.

Sources: CMS, "2026 Medicare Parts A & B Premiums and Deductibles" (November 14, 2025); Social Security Administration, form SSA-44 (Medicare IRMAA life-changing event appeal); New Jersey Division of Taxation, pension exclusion rules (GIT-1 & GIT-2); IRS, retirement plan and IRA required minimum distributions guidance. Figures verified October 11, 2026. Cover image created with AI. This article is general education, not tax, legal or investment advice — your lines depend on your own return, so review them with a qualified tax professional.