Who do I pay state tax to if I have moved and received a pension refund check?

I used to work for the State of Maryland. I had mandatory contributions to a state pension fund, but I left in 2006 before I was vested. I found out later (a nice surprise) that I was entitled to get the money I put in back, and I recently got my refund. I have lived in New Jersey for the entirety of 2007. Federal tax was withheld from the check, but not state tax. I presume that I owe state income tax to New Jersey. What confuses me is that on the stub, an estimated MD State taxable amount was listed, about 7% of the total - with the comment "excludes IRC414(h)(2)MD pick-up contributions." I worry that because I earned the money while I lived in Maryland, that I would owe the state tax to them, and have to file an extra state return (which would make things exceedingly complicated). I am probably overthinking this. Anyone out there who can straighten me out? I would feel comfortable categorizing this as a "refund of contributions." The check stub clearly identifies this as a "REFUND".

Public Comments

1. To the extent the payment is income (not a refund of contributions) it is Maryland source income and subject to Maryland state income tax provided you have enough Maryland source income to generate a liability.
2. First of all, do not worry, filing an extra state return is not exceedingly complicated, so save your energy for something else worth. All tax software's have an option to choose different states. You're not in heavy tax debt, the fact is that you just received a refund and need pay tax for that amount that is not taxed previously. As I learned below website, your mandatory contribution is made from your pre-tax income, so your refund is subject MD state tax. Do not forget! to report the withheld amount in your current federal return when you file 2007 return. Just report that taxable amount (7%) in your MD return. You need use "MD non-resident Tax Form -505" Do not include this refund under wages, tips that are your earned income and unearned income (interest, dividends etc), instead, please include under the category "Other Income" with a note "Refund of Contribution" LINE 14, FORM-505. Here is the link, If you need more info on MD State Pension System: http://www.sra.state.md.us/retiree_faqs.htm#TAXES1