Active Members

If subject to tax, a loan is counted as ordinary income for Federal income tax purposes. In addition, if you are under the age of 59½, you will incur a 10% early distribution penalty tax assessed by the Internal Revenue Service.

Tier 3, 4, and 6 loans are subject to taxation if the total outstanding loan is both:
1. Greater than $10,000
and
2. More than 50% of the member’s non-forfeitable accrued vested benefit.

When borrowing results in a consolidated loan amount over $50,000, at least the excess over $50,000 is subject to Federal income tax.

Under IRS regulations, newly consolidated loans may be subject to taxation. As always, the balance of an existing loan can be consolidated with a new loan, creating a revised 5-year repayment schedule. After January 1, 2004, however, consolidated loans with a repayment schedule beyond the original 5-year repayment date most likely will create a significant tax consequence. Please note that under IRS regulations, a loan from NYCERS or a loan from your 457 or 403 (b) Deferred Compensation Plan account are considered to be loans from the “same employer” and are subject to all IRS rules concerning loans. If all or any part of your next pension loan is subject to Federal taxes, NYCERS will offer you three loan processing methods (Refinance, Original Terms, and New Loan) to help you make an informed decision about the tax consequences.

Three Loan Processing Methods

Refinance: You have an outstanding loan that has not yet been paid in full. If your new loan is approved, NYCERS will consolidate the existing balance with the new amount, and a new repayment schedule (not to exceed 5 years) will be implemented. This method may result in the highest tax consequence.

Original Terms: You have an existing loan that has not yet been paid in full. If your new loan is approved, the amount of the new loan will be added to the existing balance. Under this method, the consolidated amount will be paid within the original repayment schedule (not to exceed 5 years) of the existing loan. Your loan may be subject to Federal taxes.

New Loan: You are applying for a loan for the first time, or you have paid off a prior loan in full. The loan could have tax consequences if it exceeds IRS thresholds.

Applying for a Loan in Person

When you apply for a loan in person at our Customer Service Center, you will be provided with a tax authorization letter that outlines the three methods. You must select how you want the loan to be distributed and return the tax authorization letter to NYCERS before your loan application can be processed. (When you apply in person at NYCERS, all of this can be handled in one visit).

Applying for a Loan Online

When you apply for a loan online, you will be able to calculate different loan amounts and repayment schedules for tax-free and/or taxable loans and select the loan you prefer.

Taxes at Retirement

Internal Revenue Service regulations now require NYCERS to treat pension loans as a retirement distribution if they are taken at, or near, the time of retirement. However, you may roll over the taxable portion to an IRA or Employer Plan. In the event you choose not to roll over the taxable amount, NYCERS is required to withhold 20% Federal tax before issuing the check. If you have not yet reached the age of 55 and you choose not to roll over the taxable distribution, you will also be subject to an additional IRS 10% early distribution penalty tax when you file your taxes for that calendar year.

If you elect to roll over the eligible distribution, it is your responsibility to ensure that the institution you name will be able to receive this direct rollover from NYCERS.

The taxable portion of any prior loan balance is also available for rollover at retirement. However, you must accomplish this rollover on your own because the distribution was previously given to you. You will receive a post-retirement rollover letter approximately 30 days after you have retired explaining the exact amount that is eligible for rollover. You will have until the due date (including extensions) of your tax return for the year in which the distribution was made to roll over the taxable portion to an eligible retirement plan. Before you file for retirement, visit NYCERS to learn about the tax and retirement benefit consequences of an unpaid loan and about your repayment options.