FD vs. PD: Outstanding Pension Loan at Retirement

This an example of how certain NYCPPF (Police) Tier 2 members are being taxed differently when compared to NYCFPF (Fire) members.  Police members affected by this should be asking their respective union board members, why?  Instead of explaining the complicated tax issues of pension loans, a simple example will be presented.


Mary is a 52-year-old Police Officer retiring with a $40,000 outstanding taxable pension loan.  Bill is a retiring 52-year-old Firefighter also with a $40,000 outstanding taxable pension loan.  Mary and Bill will receive the same Service pension ($75,000) and both file their taxes using the Single filing status.  The following table compares the two results.


Mary Bill
Pension income $75,000


Outstanding pension loan



Adjusted gross income

$115,000 $115,000
Standard deduction (2019) ($12,200)


Taxable income

$102,800 $102,800
Federal tax $18,847


Additional tax

$4,000 $0
Total tax (2019) $22,847



Mary pays $4,000 more in federal tax than Bill.  How is this possible?  Does the IRS like Firefighters more than Police Officers?  No.  This issue has nothing to do with the IRS.  The issue has to do with either the NYCPPF’s lack of knowledge regarding pension loans and taxes or the NYCPPF is not capable/willing to implement this tax savings strategy.  Whatever the reason, NYCPPF Tier 2 members who plan on retiring with an outstanding taxable pension loan should request/demand that they pay the least amount of federal tax as possible.