ASSEMBLY, No. 278

 

STATE OF NEW JERSEY

 

Introduced Pending Technical Review by Legislative Counsel

 

PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION

 

 

By Assemblyman BATEMAN

 

 

An Act clarifying the exclusion of disability pensions from gross income for gross income tax purposes, and amending N.J.S.54A:6-10.

 

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

    1. N.J.S.54A:6-10 is amended to read as follows:

    54A:6-10. Pensions and annuities. Gross income shall not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract as of the annuity starting date bears to the expected return under the contract as of such date. Where (1) part of the consideration for an annuity, endowment, or life insurance contract is contributed by the employer, and (2) during the three-year period beginning on the date on which an amount is first received under the contract as an annuity, the aggregate amount receivable by the employee under the terms of the contract is equal to or greater than the consideration for the contract contributed by the employee, then all amounts received as an annuity under the contract shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the contract contributed by the employee.

    In addition to that part of any amount received as an annuity which is excludable from gross income as herein provided, gross income shall not include payments of up to $10,000.00 for a married couple filing jointly, $5,000.00 for a married person filing separately, or $7,500.00 for an individual filing as a single taxpayer or an individual determining tax pursuant to subsection a. of N.J.S.54A:2-1, which are received as an annuity, endowment or life insurance contract, or payments of any such amounts which are received as pension, disability, or retirement benefits, under any public or private plan, whether the consideration therefor is contributed by the employee or employer or both, by any person who is 62 years of age or older or who, by virtue of disability, is or would be eligible to receive payments under the federal Social Security Act.

    Gross income shall not include any amount received under any public or private plan by reason of a permanent and total disability. This exclusion shall apply, regardless of the age of the recipient, as long as the plan states that the reason for the payment is the permanent and total disability of the recipient.

    Gross income shall not include distributions from an employees' trust described in section 401(a) of the Internal Revenue Code of 1986, as amended (hereinafter referred to as "the Code"), which is exempt from tax under section 501(a) of the Code if the distribution, except the portion representing the employees' contributions, is rolled over in accordance with section 402(a)(5) or section 403(a)(4) of the Code. The distribution shall be paid in one or more installments which constitute a lump-sum distribution within the meaning of section 402(e)(4)(A) (determined without reference to subsection (e)(4)(B)), or be on account of a termination of a plan of which the trust is a part or, in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan.

(cf: P.L.1990, c.61, s.16)

 

    2. This act shall take effect immediately, and apply to taxable years ending after December 31, 1994.

 

 

STATEMENT

 

    Under current law, "gross income" for purposes of the gross income tax excludes any amount received by an individual under any public or private plan because of a permanent and total disability. The Division of Taxation has interpreted this exclusion as applying only to recipients under the age of 65 years. If an individual retires before age 65 on a total and permanent disability pension and continues to receive such pension payments after age 65, the disability pension becomes an ordinary pension, according to the Division of Taxation. Therefore, the payments become ordinary pension income, and are taxable after the exclusion of certain amounts permitted by N.J.S.54A:6-10 and 54A:6-15.

    The purpose of this bill is to permit the exclusion from "gross income" of disability pension payments for recipients age 65 and older as long as the public or private plan continues to designate the payments as payments for the total and permanent disability of the recipient.


 

Clarifies exclusion of disability pensions from gross income for gross income tax purposes.