New York does not tax Social Security benefits, and it fully exempts pensions paid by New York State, its local governments, and the federal government. Private retirement income from 401(k) plans, IRAs, and non-government employer pensions gets a smaller break: the first $20,000 per person each year is excluded from state tax once you turn 59½. Everything above that is taxed at New York’s regular rates.
Social Security Is Fully Exempt
Every dollar of Social Security you receive is subtracted from your New York adjusted gross income. There is no income limit, no phase-out, no age test, and no cap.1Department of Taxation and Finance. Information for Retired Persons Retirement, survivor, and disability benefits paid through the Social Security Administration all qualify. Up to 85% of your Social Security may still be taxable on your federal return depending on your total income, but New York ignores that amount entirely.
Railroad retirees get the same treatment. Tier 1 Railroad Retirement benefits, Tier 2 benefits, and supplemental annuities paid under the Railroad Retirement Act are all exempt from New York State income tax.1Department of Taxation and Finance. Information for Retired Persons You report the subtraction on Form IT-225 using the appropriate modification code.
Government Pensions Are Fully Exempt
Under Tax Law Section 612(c)(3), pensions paid to former officers and employees of New York State and its subdivisions, along with pensions from the federal government, U.S. territories, the District of Columbia, and their agencies, are fully excluded from New York income tax with no dollar cap.2New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of Residents There is no age requirement.
Sources that qualify include the New York State and Local Retirement System, the New York State Teachers’ Retirement System, the New York City Employees’ Retirement System, other public authorities within the state, federal civil service retirement (FERS and CSRS), military retirement pay, and pensions from federal agencies.1Department of Taxation and Finance. Information for Retired Persons A retired state trooper drawing a $90,000 pension pays no New York State tax on it. Neither does a retired federal employee drawing $120,000 from FERS.
Other States’ Government Pensions
This is where retirees moving to New York often get caught out. The unlimited exemption covers pensions from New York, its local governments, and the federal government. It does not extend to other states’ public retirement systems.2New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of Residents The implementing regulation confirms that a pension from a public benefit corporation not funded by New York State or the federal government does not qualify for full exemption.3Cornell Law Institute. 20 NYCRR 112.3 – Modifications Reducing Federal Adjusted Gross Income
If you retired from New Jersey’s state pension or California’s CalPERS and now live in New York, your pension falls under the $20,000 private pension exclusion below, not the unlimited government pension exemption. The difference can be worth thousands of dollars a year.
Private Pensions, 401(k)s, and IRAs: the $20,000 Exclusion
Section 612(c)(3-a) lets you exclude up to $20,000 per year of qualifying pension and annuity income from your New York taxable income.2New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of Residents Qualifying sources include:
- Distributions from 401(k) and 403(b) plans
- Traditional IRA and SEP-IRA withdrawals
- Private employer pension payments
- Annuity income from employer-sponsored retirement plans
The $20,000 is a combined cap covering all qualifying distributions during the year. Take $15,000 from an IRA and $10,000 from a former employer’s pension, and you exclude $20,000; the remaining $5,000 is taxed at New York’s regular rates, which run from 4% to 10.9% depending on total income.4Department of Taxation and Finance. Instructions for Form IT-201 Full-Year Resident Income Tax Return
One category doesn’t count: lump-sum distributions taxed separately under the special averaging method on Form IT-230 are not treated as pensions and annuities for this exclusion.2New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of Residents Electing that separate calculation on a large one-time payout means the $20,000 subtraction does not apply to it.
Who Can Claim the $20,000 Exclusion
You Must Be 59½
The statute limits the exclusion to individuals who have reached age 59½.2New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of Residents If you cross that birthday partway through a tax year, only distributions received after that date qualify.4Department of Taxation and Finance. Instructions for Form IT-201 Full-Year Resident Income Tax Return Distributions received before it are fully taxable at the state level even from a qualifying retirement plan.
Married Couples
If both spouses receive qualifying retirement income, each claims a separate $20,000 exclusion. The statute treats the calculation as if the spouses were filing separately.2New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of Residents A household can exclude up to $40,000 if both qualify, but unused amounts cannot be shifted between spouses. If one spouse receives $30,000 in pension income and the other receives $8,000, the couple excludes $28,000 total, not $40,000.4Department of Taxation and Finance. Instructions for Form IT-201 Full-Year Resident Income Tax Return
Inherited Retirement Accounts
When you inherit a retirement account, you don’t get a fresh $20,000. The deceased person’s exclusion carries over to the beneficiaries, and if there are several, the $20,000 is split among them in the same proportion as the distributions.5Department of Taxation and Finance. Advisory Opinion TSB-A-24(8)I Three beneficiaries splitting an IRA equally each get about $6,667, not $20,000 apiece.
Moving Into or Out of New York
Part-year residents calculate the $20,000 exclusion separately for each period. For the time you were a New York resident, you can exclude up to $20,000 of qualifying pension income received during that period. For the nonresident portion of the year, you can also exclude up to $20,000, but only against pension income required to be reported on your New York return.6Department of Taxation and Finance. Instructions for Form IT-203, Nonresident and Part-Year Resident Income Tax Return
Once you are a full nonresident, federal law under 4 U.S.C. Section 114 bars New York from taxing pension income from qualified plans paid to nonresidents.1Department of Taxation and Finance. Information for Retired Persons A retiree who worked for a New York employer and moved to Florida does not report that pension on a New York return at all.
New York City and Yonkers
City income tax for New York City residents, and the Yonkers surcharge for Yonkers residents, are calculated from your New York adjusted gross income. The Social Security exemption, government pension exemption, and $20,000 private pension exclusion all flow through, reducing city and Yonkers tax the same way they reduce state tax. Payers of pensions and annuities are not required to withhold New York City tax, though you can request voluntary withholding on Form IT-2104-P if you would rather not make estimated payments.1Department of Taxation and Finance. Information for Retired Persons