3-year or General Rule for NJ pension exclusion

[thalmbi]

My wife and I both retired from NJ public school teaching this past June 30, 2022, and received our first pension check on August 1, 2022,

The amount we receive in pension for the next 36 months (Aug 1, 2022 to Jul 30, 2025) starting with our first check, will be slightly greater than our original contribution, so according to Worksheet A we are allowed to use the 3-year rule in excluding our pensions from NJ Taxes until we recoup our contributions.

Here's our question: We just want to make sure that we're interpreting the 3-year rule correctly; since we retired in the middle of the year, the 36 months that it will take to recoup our original contributions, will bridge 4 years of NJ-1040 tax returns, since this 1st year will only represent a portion of our annual pension amount, and the last year will only have a portion of the entire annual pension that will be allowed to be excluded.  IS THIS CORRECT: that since the 36 months to recoup our contributions bridges 4 years of tax returns, that we are still allowed to use the 3-year rule?   Thank you very much.

PS: I was able to finally get a call through the NJ Div of Taxation Customer Service line and ask them this same question, but since they had to look up what I was talking about, and put me on hold, before they would answer me, I thought I would try and corroborate their answer by asking the TurboTax Community. Thanks again.

[MaryK4 · Accepted solution]

Yes, your three years can span four years--Your recovery period – the time it takes to recover your contributions to the plan – begins on the date of your first pension payment and can last  up to three years (36 months).  See Tax Topic Bulletin GIT-1&2 , Retirement Income, for more information.

[thalmbi]

Thank you very much, MaryK4, for your extremely fast response; it is much appreciated!

Your response saying 36 months being allowed to span 4 years, was my interpretation as well...after reviewing the NJ-1040 instructions (pg 13), GIT 1 & 2, and the Worksheets A & B instructions, no where did it say that the 36 months were to be limited to 3 tax years.  If such were the case, then anyone retiring past January would lose some of their exclusion.  I said this to NJ Taxation Customer Service when I was able to get through, but they said the 36 months must be used within 3 tax returns.  However, they did say they had to read the pertinent rule and put me on hold while doing so, before they said the within 3 tax returns.  I will call them back, now that I have a little more confidence in the interpretation.  Thank you!