Pension Exclusion In The State Of New York

by ECL Writer
SSI Benefits NY

In New York, there is a pension exclusion that allows certain types of retirement income to be excluded from state income tax. This includes income from pensions, annuities, and certain types of retirement plans.

To qualify for the pension exclusion, the individual must be age 59 1/2 or older at the time the income is received, and the pension or annuity must be received as a result of the individual’s past employment. Income from 401(k) plans, 403(b) plans, and other qualified plans, as well as income from traditional individual retirement accounts (IRAs) also qualify for the exclusion.

The amount of the exclusion varies depending on the individual’s income and filing status. For the tax year 2021, the exclusion is $20,000 for married couples filing jointly, $10,000 for single or head-of-household filers, and $15,000 for married couples filing separately.

However, there are some limitations to the pension exclusion. For example, if an individual has income from both a pension and a non-pension source, such as wages or self-employment income, the exclusion will only apply to the pension income up to the limit. Additionally, the exclusion does not apply to any portion of the pension that is considered to be a return on investment, rather than a return on contributions.

It is important to note that the pension exclusion only applies to state income tax in New York and not to federal income tax. Therefore, even if an individual qualifies for the exclusion, they will still need to report their pension income on their federal tax return.

Also Read: REAL ESTATE TRANSFER TAXES IN NEW YORK

Can I exclude my pension from New York’s income?

In New York, there is a pension exclusion that allows certain types of retirement income to be excluded from state income tax. This includes income from pensions, annuities, and certain types of retirement plans. The individual must be 59 1/2 years of age or older at the time the income is received and the pension or annuity must be obtained as a result of the individual’s prior employment in order to be eligible for the pension exclusion. The exclusion also applies to income from conventional individual retirement accounts (IRAs), 401(k) plans, 403(b) plans, and other eligible plans.

The amount of the exclusion varies depending on the individual’s income and filing status. For the tax year 2021, the exclusion is $20,000 for married couples filing jointly, $10,000 for single or head-of-household filers, and $15,000 for married couples filing separately.

However, there are some limitations to the pension exclusion. For example, if an individual has income from both a pension and a non-pension source, such as wages or self-employment income, the exclusion will only apply to the pension income up to the limit. Additionally, the exclusion does not apply to any portion of the pension that is considered to be a return of investment, rather than a return on contributions.

It is important to note that the pension exclusion only applies to state income tax in New York and not to federal income tax. Therefore, even if an individual qualifies for the exclusion, they will still need to report their pension income on their federal tax return.

NOTE: You cannot subtract the following:

  • Pension payments or return of contributions that were attributable to your employment by an employer other than a NY public employer, such as a private university, and any portion attributable to contributions you made to a supplemental annuity plan which was funded through a salary reduction program.
  • Periodic distributions from government deferred compensation plans. However, these payments and distributions may qualify for the other pension and annuity income exclusion in NY not associated with the NYS and local governments, and the federal government.

To enter this subtraction on your New York return, follow the steps below:

  • State Section
  • Edit 
  • Subtractions from Income 
  • Certain Pension Income is Excluded from New York taxable income

Disability Income Exclusion

Your disability income can be excluded of up to $20,000. You may exclude your disability income from your New York tax return if you meet ALL of the following tests:

  • You received disability pay.
  • You were not 65 when the tax year ended.
  • You retired and were permanently and totally disabled.
  • On January 1 of this tax year, you had not yet reached the age when your employer’s retirement program would have required you to retire.
  • If you were married at the end of this tax year and filed as Married filing separate return, on your federal and New York State returns, you may claim the disability income exclusion only if you and your spouse lived apart during the entire tax year.

Program Entry

To enter this exclusion on your New York return, follow the steps below:

  • State Section
  • Edit NY return
  • Subtractions from Income 
  • Other Subtractions
  • Disability Income Exclusion (IT-221) 

If you take both the pension and disability exclusion, the total of your two exclusions cannot exceed $20,000.

For additional information see IT-201 Instructions.

Also Read: NEW YORK ESTATE TAX – ALL YOU NEED TO KNOW

Is New York State Tax-Friendly For Retirees?

New York State generally has high taxes, which can be a disadvantage for retirees living on a fixed income. The state has high-income taxes, sales taxes, and property taxes. However, there are some exemptions and credits that can help retirees lower their tax burden. For example, there is a “circuit breaker” property tax relief program for seniors with limited incomes, and there is a STAR property tax exemption for certain homeowners. Additionally, New York State does not tax Social Security benefits, but it does tax pension and retirement income. If you are considering retiring in New York State, it’s a good idea to consult a tax professional to understand how state taxes will affect your retirement income.

Are Pensions Tax-Free In NY?

Pensions are not tax-free in New York State. Income from pensions is considered taxable income and is subject to both state and federal income taxes. However, there are some exemptions and deductions that may lower the amount of tax you owe on your pension income.

For example, there is a state income tax exclusion for pension income of up to $20,000 for those who are age 59 1/2 or older in the year they receive the income. There is also an additional exclusion of up to $10,000 for those who are aged 62-79 and $5,000 for those who are age 80 or older. Additionally, if you are over the age of 62, you may qualify for the NYS Senior Citizen Homeowners’ Exemption, which provides a reduction on property taxes.

It’s important to note that federal tax laws and state tax laws may change over time and so it’s always advisable to consult a tax professional to understand how your pension income will be taxed in New York State.

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