You can use the three-year rule method or the general rule method to calculate the taxable and excludable amounts for pension benefits. Please see below what applies to you.
Three-year rule: You may use this method if you will recover all of your contributions to the plan within 36 months from the date you receive your first payment from the plan, and both you and your employer contributed to the plan. Benefits based on your contributions are not taxable in New Jersey, but benefits based on your employer's contributions are fully taxable.
General rule: You must use this method if you will not recover your contributions within 36 months from the date you receive your first payment from the plan, or your employer did not contribute to the plan. Use this method to calculate a percentage of your annual benefits that is not taxable in New Jersey. Once you calculate the non-taxable percentage it will be used for all distributions from this plan in the future.
For more information on pensions and annuities, see the New Jersey Division of Taxation, Tax Topic Bulletin GIT-1.