Tag Archives: Payroll deductions

Making Loan Payments When You Leave Public Employment

To repay a NYSLRS loan, you make loan payments automatically through payroll deductions. But what happens if you go off the public payroll before the loan is paid off?

The answer is…it depends. If you leave your job because you’re retiring, then your pension will be reduced. (Employees’ Retirement System members may repay their loan after retiring, but they must pay the full balance in a single payment.)

However, if you leave public employment for any other reason, you must make loan payments directly to NYSLRS at least quarterly and pay off your loan balance within five years from the date the loan was issued. If you fail to meet either of these conditions, your loan will go into default.

You will still need to repay the outstanding balance to NYSLRS, and the loan will continue to accrue interest and insurance charges until it’s paid in full.

loan payments when you leave public employment

What Happens If My Loan Defaults?

If your loan defaults, NYSLRS will report your outstanding balance, minus any previously taxed amount, to the Internal Revenue Service (IRS) as a distribution to you. You must also include the loan on your federal income tax return for the year it defaults. (If it was taxable before default, you will not be re-taxed on that portion of the loan.)

If you’re younger than 59½ in the year the loan defaults, the IRS will charge an additional 10 percent penalty on the taxable portion of the loan. (There are no New York State or local taxes due on the distribution.)

We also cannot issue a new loan until the defaulted loan has been repaid.

Managing Your Loan Payments

If you leave public employment, contact us as soon as possible. We’ll tell you the exact amount you’ll need to repay each quarter to avoid defaulting.

Retirement Online offers a convenient way to manage your NYSLRS loan. Sign in to check your balance. You can also use Retirement Online to make quarterly loan payments or pay off the balance. If you don’t have an account, sign up today.

If you mail your loan payments by check, be sure to write “loan payment” on your check and include your NYSLRS ID number so we can apply it to the correct account. Mail payments to:

NYSLRS
Attn: Accounts Receivable
110 State Street
Albany, NY 12244-0001

Payroll Deductions and Your NYSLRS Loan

If you take a loan against your NYSLRS contributions, you must repay the loan in five years. This timeframe is required by the Internal Revenue Service. If the loan is not repaid within five years, it defaults.

loan payroll deductions

NYSLRS loans are paid back through payroll deductions, which are taken out of your paycheck by your employer. During the five-year period, we’ll periodically review your remaining loan balance. If your current payroll deduction amount won’t be enough to pay off your loan within the required timeframe, we’ll notify your employer to increase your payroll deduction. We do this to make sure you can repay your loan on time.

Generally, the increase of your payroll deduction will be small. Your increase could be more significant if, for example, you go on leave without pay and need to make up any missed payments.

Once you pay your loan in full, we’ll notify your employer to stop taking payroll deductions.

How You Can Adjust Payroll Deductions

You can sign in to your Retirement Online account or call our automated phone line to check your outstanding loan balance. Knowing your outstanding loan balance can help you determine how to adjust your payroll deductions if you want to pay off your loan sooner. Please visit our website for more information about repaying your NYSLRS loan.