Gross Income Tax Treatment of Employer Post-Retirement
Contributions to a Section 403(b) Plan
Employers under provisions of the federal Economic Growth and Tax Relief Reconciliation Act (EGTRRA) may make post retirement contributions to a §403(b) plan up to five years following an employee’s separation from service. These contributions for federal tax purposes are not taxable to the employee when made to the plan but are taxable upon withdrawal from the plan.
The New Jersey Gross Income Tax Act, unlike the Internal Revenue Code of 1986, does not have a provision deferring the tax on contributions made by an employer or employee to a §403(b) plan. As such these contributions are taxable in the year made and are subject to withholding like any other wage or remuneration paid an employee. To that end employers making post separation contributions to a former employee’s §403(b) account must issue the employee a W-2 indicating the amount contributed in the State Wage box and withhold New Jersey Gross Income Tax if the amounts contributed require withholdings.
The employee should report these contributions reflected on the W-2 received as wages, in the year(s) made on their Gross Income Tax return(s), calculate their tax accordingly and claim any withholdings listed on the W-2. Any distributions the employee receives from the §403(b) should be adjusted/reduced for the contributions already reported and taxed for Gross Income Tax purposes.