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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.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. You need to look at the NJ publication on pensions http://www.state.nj.us/treasury/taxation/pdf/pubs/tgi-ee/git1.pdfIt expalins how to show the already taxed portion on your return for NJ.
Look at the section for contributory plans.