Early last year I decided to close out my pension with the State of New Jersey considering it had been dormant since 1995. I told them to take out the taxes which they did. I made sure to ask if I would be taxed on it again before i signed anything.

I got a nice check which really helped since my wife and I have been unemployed for a year and a half. Both of us are going to school to change careers and find work in each field.

Anyway I just received a 1099R for the pension loan and was told by someone in Trenton I had to declare this on my 2010 taxes. Of course I wondered why since the taxes were taken out.

The Gross Distribution box is marked with a number and so is the Taxable Amount about 4,000 less than GD number. Which is what is confusing me since, as stated already, that the taxes were taken out already. There is also an amount in the Federal Taxes Withheld box, none in the state.

So I guess my question is, and you can forgive me for being naive or stupid, why do I have to declare this to begin with and why is there a Taxable Amount?

Thanks
Simon in NJ