Pensions and other retirement benefits paid to public officers and public employees of New York State, its political subdivisions or agencies or the Federal government (Tax Law, § 612[c][3]).

(i) Retirement benefits provided for in clauses ( a ) and ( b ) of this subparagraph which are included in Federal adjusted gross income, relate to services performed as public officers or public employees and all or a portion of which are actually contributed to (rather than merely being deemed contributed to) by New York State, its political subdivisions or agencies or the Federal government, shall be subtracted in computing New York adjusted gross income:

(a) pensions and other retirement benefits (including, but not limited to, annuities, interest and lump sum payments) paid to a public officer or public employee or the beneficiary of a deceased public officer or deceased public employee of New York State, its political subdivisions or agencies;

(b) pensions and other retirement benefits (including but not limited to annuities, interest and lump sum payments) paid to a public officer or public employee or the beneficiary of a deceased public officer or deceased public employee of the United States, its territories or possessions, or political subdivisions of such territories or possessions, the District of Columbia, or any agency or instrumentality of any one of the foregoing.

(ii) This paragraph shall also apply to distributions paid in a taxable year prior to retirement to public officers and public employees which represent a return of contributions to the applicable public retirement program.

(iii) The provisions of this paragraph can be illustrated by the following examples: A retired employee of New York State receives a pension which is taxed under the Internal Revenue Code as annuity income. Since the pension of a retired New York State employee is exempt from New York State personal income tax under New York State law, the amount included in Federal adjusted gross income on account of this pension is subtracted in determining such employee's New York adjusted gross income. A New York State employee leaves state service prior to vesting in the New York State Employee's Retirement System. Contributions made by or on behalf of such employee, as well as all investment earnings accumulated thereon, are to be subtracted in determining such employee's New York adjusted gross income. A retired Federal employee receives a pension which is taxed under the Internal Revenue Code as annuity income. Since the pension of a retired Federal employee is exempt from New York State personal income tax under New York State law, the amount included in Federal adjusted gross income on account of this pension is subtracted in determining such employee's New York adjusted gross income. A retired employee of the State University of New York who elected to participate in the applicable Optional Retirement Program authorized under the Education Law receives a pension, based upon such employee's public service, which is taxed under the Internal Revenue Code as annuity income. Since such pension income is exempt from New York State personal income tax under New York State law because such pension was actually contributed to by New York State, the amount included in Federal adjusted gross income on account of this pension is subtracted in determining such employee's New York adjusted gross income. A retired employee of a public benefit corporation receives a pension from a fund which was not contributed to by New York State, any of its political subdivisions or agencies or the Federal government and which is taxed under the Internal Revenue Code as annuity income. Since such pension income is not exempt from New York State personal income tax under New York State law because such pension was not actually contributed to by New York State, any of its political subdivisions or agencies or the Federal government, the amount included in Federal adjusted gross income on account of this pension is not subtracted in determining such employee's New York adjusted gross income and is therefore included in such employee's New York adjusted gross income.