You would not use the 'General Rule' for this pension unless you have after-tax dollars that you paid into the plan. You have no cost in the plan for federal purposes if it was all pre-tax dollars that went into the plan. If you have no cost in the plan (after tax dollars) there is no need for using this rule. However, if you did contribute after-tax dollars then you would use the simplified or general rule. You must find your cost in the plan.
According to New Jersey (NJ) you must pay tax on your resident return just like the federal return.
New York (NY): NYSLRS pensions are not subject to New York State or local income tax, but if you move to another state, that state may tax your pension.
New Jersey (NJ): Noncontributory Plans and Contributory Plans
Noncontributory Plans:
If you were not required to contribute to your retirement plan while you were working, it is a noncontributory plan. All the amounts you receive from that plan are fully taxable.
If you did contribute after-tax dollars the same amount should be taxable on NJ as the federal.
Contributory Plans (Other Than IRAs):
If you were required to contribute to your retirement plan, it is a contributory plan. Contributions are usually made through payroll deductions, and, in general, have already been taxed. Your contributions are not taxed when withdrawn. However, any employer contributions and earnings that have not been taxed must be reported.
You will need to determine the taxable and excludable parts of your distribution. There are two methods you can use to calculate these amounts: Three-Year Rule Method and General Rule Method. If you use the Three-year Rule Method, your pension is not reported as taxable income until the payments you receive from the plan equal the amount you contributed. Once you have received an amount equal to your contributions, all payments from the pension plan are fully taxable. If you use the General Rule Method, part of your pension or annuity payment is taxable and part is excluded from your income every year. If you are filing a resident return, you must report both the taxable and excludable portions of your distribution on the separate lines provided for that purpose on Form NJ-1040.
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