Possible Deductions from Pension Check
Income T
ax
• Federal – Tax is due as soon as you start collecting pension (see federal income tax withholding tables).
• State – If living in New Jersey, no tax is due until you have collected pension equal to your total contribu-
tion to the retirement system (unless not recovered in 3 years).
At age 62 you can exclude $20,000 if married filing joint return or $15,000 if single.
If living outside New Jersey, you are not subject to New Jersey income tax.
Loan
If you retire before repaying the outstanding balance of your loan, your loan payments will be carried into retire-
ment. That is, your retirement allowance will be reduced by approximately the same monthly amount you were
paying towards your loan just prior to retirement.
Health Benefits
State Employees and Employees of State Universities/Colleges: If you had 25 or more years of service
credited in one pension system before July 1, 1997, the State of New Jersey agreed to pay the full health ben-
efit cost in retirement. If you attain 25 years of service after July 1, 1997 or retire on a disability retirement you
may share in the health insurance costs according to the terms specified in the appropriate bargaining unit
agreements in effect at the time you reached your 25 years credited in the retirement system or retired with a
disability retirement.
State employees and employees of State universities/colleges who do not
retire on a disability retirement or do
not have 25 or more years of service credited in the retirement system at the time of retirement pay the full cost
of health benefits coverage. Premiums are usually deducted from the monthly pension checks. If the monthly
retirement allowance is not sufficient to cover the premium, you will be billed on a monthly basis.
School Board and County College Employees: The State of New Jersey, by law and according to the terms
specified in the appropriate bargaining unit agreements, pays for either all or some of the health benefit cost for
school board and county college employees who retire with 25 or more years of service credit in the retirement
system and for those approved for disability retirement.
Other Local Employees: Chapter 48, P.L. 1999, gives local employers who participate in the SHBP the option
of paying for the cost of health premiums for their retirees, as negotiated with the various bargaining agents for
their employees. Employers may pay for the following groups of retiring employees:
• Employees who retire on a disability retirement;
• Employees with 25 years of service in the retirement system. The employer may further require a certain
number of years of service with that employer or that the employee be at least age 65 at the time of retire-
ment;
• Employees who are at least age 62 with 15 or more years of service with the employer.
If the employer does not pay for retiree health benefit premiums or only pays for a portion of them, the retirees
have deductions taken from their monthly pension checks. If the monthly check is not sufficient to cover the pre-
mium, the retiree is billed monthly.
Some local employers
agreed before the enactment of Chapter 48, to pay under the provisions of Chapter 88,
P.L. 1974, for the health benefits for employees who retired with 25 or more years of service credited in one
retirement system and for those approved for disability retirement. These employers also agreed to reimburse
those employees for the Medicare Part B premiums paid by the member and/or their spouse, civil union partner,
(and in some cases an eligible same-sex domestic partner under Chapter 246, P.L. 2003). Check with your
employer to determine if they adopted the provisions of these laws.
