What Pensions Are Not Taxable in New York State?

The pensions not taxable in New York State are those paid by New York State and its local governments, the federal government, and the U.S. military. All three categories are fully exempt from New York State income tax with no dollar cap and no age requirement. Social Security and Railroad Retirement benefits are also fully exempt. Private-sector pensions, 401(k)s, 403(b)s, and traditional IRAs don’t get a full pass; they qualify only for a $20,000 annual exclusion, and only once you reach age 59½.

The lines between these categories matter. Getting them wrong means either overpaying the state or drawing a notice from the Tax Department.

Government, Federal, and Military Pensions

If your pension comes from a New York State or local government retirement system, every dollar is exempt from state income tax. Size of the pension, your age, monthly check or lump sum — none of it changes the result. The exemption sits in New York Tax Law Section 612(c)(3), which allows a subtraction for the full amount of these pensions included in your federal adjusted gross income.

The retirement systems covered include:

New York State Employees’ Retirement System (ERS)
New York State Police and Fire Retirement System (PFRS)
New York State Teachers’ Retirement System (NYSTRS)
New York City Employees’ Retirement System (NYCERS)
New York City Teachers’ Retirement System (NYCTRS)
Other local government pension plans administered by counties, cities, towns, villages, and school districts in New York

The New York State Comptroller’s office confirms NYSLRS pensions are not subject to New York State or local income tax.¹ Disability retirement pensions from these systems get the same full exemption. A PFRS retiree on an accidental disability pension is treated the same as a 30-year service retiree.

Federal government pensions are also fully exempt under the same provision.² That covers annuities from the Federal Employees Retirement System (FERS), the older Civil Service Retirement System (CSRS), the Foreign Service, the Public Health Service Commissioned Corps, and the NOAA Commissioned Officer Corps. A retiree collecting $90,000 a year from FERS owes zero New York State tax on that income, regardless of age. Federal disability retirement pay that the IRS treats as wages before minimum retirement age still qualifies for New York’s full exemption, because the source is a federal government pension plan.³

Military retirement pay from every branch — Army, Navy, Air Force, Marine Corps, Coast Guard, and Space Force — is entirely exempt from New York State, New York City, and Yonkers income tax.⁴ Both length-of-service retirement pay and disability-based military retirement pay qualify. Survivor Benefit Plan payments to a retiree’s surviving spouse or other beneficiary are fully exempt too. What doesn’t ride along: a private-sector pension a veteran earns in a second career. That pension falls under the $20,000 exclusion.

The 457(b) Exception

One trap sits inside the government category. Section 457(b) deferred compensation plans offered by New York State or local governments do not get the full exemption. Even with a government employer on the paperwork, 457(b) distributions are treated like private retirement income and are capped at the $20,000 exclusion.⁵ The distinction turns on whether the money comes from a defined benefit pension system or a deferred compensation arrangement.

Social Security and Railroad Retirement

New York fully exempts Social Security benefits from state income tax. Any Social Security income in your federal adjusted gross income can be subtracted on your New York return.⁶ This matters because the federal government taxes up to 85% of benefits for higher earners. New York doesn’t follow suit.

Railroad Retirement gets the same treatment. Tier 1 benefits, the Social Security equivalent portion, can be subtracted from federal adjusted gross income on your state return. Tier 2 benefits and supplemental annuities under the Railroad Retirement Act of 1974 are also exempt from New York State income tax under federal preemption in Title 45 of the United States Code.⁶ You claim these subtractions on Form IT-225 using the modification codes referenced in the form instructions.

The $20,000 Exclusion for Private Pensions and IRAs

Retirement income outside the fully exempt categories still gets a partial break. New York lets you exclude up to $20,000 per year of qualifying pension and annuity income from your state adjusted gross income.⁶ The ceiling is per person, not per account. Income from a former employer’s defined benefit pension plus a 401(k) that together total $50,000 means you exclude $20,000 and pay state tax on the other $30,000.

You must be 59½. If you were 59½ for the entire tax year, the full exclusion is available. If you turned 59½ partway through the year, only pension income received on or after that birthday counts.⁶ Below 59½, this provision gives you nothing.

Income that qualifies includes private employer defined benefit pensions (periodic payments only), 401(k) and 403(b) distributions (periodic only), traditional IRA distributions (lump sum or periodic), SEP-IRA and Keogh plan distributions (lump sum or periodic), and government 457(b) distributions (periodic only).

Married couples filing jointly can each exclude up to $20,000 if both spouses receive qualifying income, for a combined $40,000.⁶ Each spouse’s exclusion is calculated independently.

The Lump-Sum Trap

Here’s where people lose money they didn’t need to lose. For private employer pensions, 401(k)s, 403(b)s, and 457(b) plans, only periodic payments qualify. A lump-sum distribution from one of these plans does not qualify and is fully taxable at the state level.² Cashing out a 401(k) in one shot has a real state tax cost.

IRAs and Keogh plans are the exception. The statute specifically allows these to qualify for the $20,000 exclusion whether received as a lump sum or in periodic payments.⁷ Rolling a 401(k) into a traditional IRA before taking distributions can preserve the exclusion even on a large one-time withdrawal.

Out-of-State Government Pensions

This catches people who move to New York in retirement. A government pension earned in another state does not qualify for the full exemption. The statute limits that exemption to pensions from New York State and its political subdivisions, plus federal and military pensions.² A pension from the California State Teachers’ Retirement System or the New Jersey Public Employees’ Retirement System is treated like a private pension for New York purposes. You’re limited to the $20,000 exclusion, assuming you meet the age requirement.

Inherited Pensions and Retirement Accounts

If you inherit a pension or IRA, the New York treatment depends on how old the original owner was at death. If the owner had reached 59½ before dying, the beneficiary inherits the right to the $20,000 exclusion on distributions from that account, even if the beneficiary is younger than 59½.² The statute specifically treats payments received by the beneficiary as pension income eligible for the exclusion when the account holder is deceased.

If the original owner died before reaching 59½, the beneficiary does not inherit the exclusion, and all distributions are fully taxable at the state level. Beneficiary’s age and relationship to the decedent don’t change that.

Inherited pensions from New York State, local, or federal government retirement systems stay fully exempt regardless of the decedent’s age at death, because that full exemption has no age requirement to begin with.

Claiming It on Your Return

Full-year New York residents file Form IT-201. The pension and annuity income exclusion goes on Line 29, labeled “Pension and annuity income exclusion.”⁸ Part-year residents and nonresidents use Form IT-203.

Before you fill in that line, separate your retirement income into two buckets. First bucket: income that is fully exempt (New York State and local government, federal government, military). Second bucket: income that qualifies only for the $20,000 exclusion (private pensions, IRAs, out-of-state government pensions, government 457(b) plans). The fully exempt income gets subtracted in full. The $20,000-limited income gets subtracted up to the cap. The form instructions include a worksheet that walks through the calculation. Skipping Line 29 means the state taxes every dollar of your pension income, so it’s not a line to overlook.

For Social Security and Railroad Retirement subtractions, you’ll also need Form IT-225, which handles additional New York State modifications. The IT-225 instructions list the modification codes for each type of exempt income.

1
Office of the New York State Comptroller. Taxes and Your Pension
2
New York State Senate. New York Tax Law 612 – New York Adjusted Gross Income of a Resident Individual
3
Internal Revenue Service. Tax Highlights for Persons With Disabilities
4
Department of Taxation and Finance. Information for Military Personnel and Veterans
5
Department of Taxation and Finance. New York Tax Treatment of Distributions and Rollovers Relating to Government Section 457 Deferred Compensation Plans
6
Department of Taxation and Finance. Information for Retired Persons
7
Department of Taxation and Finance. Pension and Annuity Exclusion
8
Department of Taxation and Finance. IT-201 Resident Income Tax Return Information