When you prepare your New York state taxes and you're either retired or age 59 1/2 or older, you can subtract some income from your federal adjusted gross income before you calculate your New York state taxable income. New York state income tax on pensions depends on whether the pension is a government pension or a private one.
Pension income you receive from the federal, state or local government is exempt from New York state income tax. Retirees receiving a private pension or annuity can generally subtract up to $20,000 from their federal adjusted gross incomes, and married couples are entitled to each claim the deduction for their own pensions up to $20,000.
NYS Pension Taxation by the State
If you live in New York and receive a pension that's paid by the state of New York, you don't have to pay state income tax on your pension income. You're also exempt from state income tax if your pension is paid by a local government in New York, by the federal government or by certain other public authorities such as the New York State Teachers' Retirement System, the Metropolitan Transportation Authority, the Manhattan and Bronx Surface Transit Operating Authority and the Long Island Railroad Company.
A complete list of public authorities is included in New York State Department of Taxation and Finance Publication 36, "General Information for Senior Citizens and Retired Persons."
Non-Employee Beneficiaries and Non-Employee Spouses
If you're receiving a pension that's paid by the state of New York, the federal government or another public authority as a nonemployee beneficiary or as a nonemployee spouse who is receiving the pension as a result of a court-issued qualified domestic relations order, you do not have to pay New York state income tax on the pension income. When you're not required to pay state income tax on your pension, the authority that pays your pension will not withhold any state income tax unless you specifically request it.
Social Security Benefit Exemptions
Since Social Security benefits are paid by the federal government, they qualify for the exemption from New York state income tax, regardless of whether you're receiving a private pension or a government-paid pension.
Pension and Annuity Income Exclusions
If you're receiving a pension or income from an annuity purchased by a private employer, your pension is taxable. However, if you're age 59 1/2 or older, you can exclude up to $20,000 of your pension or annuity income from your New York state taxable income through the NYS pension and annuity income exclusion. If you turn age 59 1/2 during the tax year, you're only eligible to exclude the portion of the pension or annuity income you earned while you were age 59 1/2. Distributions from an individual retirement account, deferred compensation plan or Keough plan are also eligible for the exclusion as long as you made the contributions before you retired.
Nonemployee and Surviving Spouse Exclusions
A nonemployee spouse who receives income from a private pension or company-purchased annuity as a result of a qualified domestic relations order is not entitled to the $20,000 exclusion. A surviving spouse who receives the income as a beneficiary can claim the exclusion beginning in the year in which her spouse would have turned age 59 1/2. A married couple can each exclude up to $20,000, regardless of whether they file a joint return or separate returns. Income from an annuity you purchased yourself is fully taxable.
Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.