New York permits resident taxpayers to exclude a portion of qualified retirement income, which includes pensions, annuities and individual retirement account (IRA) distributions from taxable income. However, the state imposes limitations on how much and what types of payments from IRA accounts are exempt from state income taxation based on total income. New York adjusted gross income for taxing purposes is computed from federal adjusted gross income.
New York income tax regulations specify that excludable retirement income does not include payments received from contributions the taxpayer made to an IRA after retiring from work. In other regulations concerning taxable and non-taxable portions of IRA, New York basically follows federal guidelines. For example, the age limit imposed on withdrawing income from an eligible IRA without penalties is 59-1/2, the same as federal regulations.
Tax guidelines for New York state income taxpayers also clarify that if the taxpayer becomes 59-1/2 years of age during the tax year and withdraws funds from an IRA, the exclusion is applicable only to the portion of the withdrawal taken after age 59-1/2. Consider, for example a taxpayer who reaches age 59-1/2 on September 1. Suppose the taxpayer has been receiving distributions from an IRA since January 1. The portion that she could exclude under New York tax law would include only that income received for one-quarter of the year -- from September 1 through December 31.
The state refers resident taxpayers to the Internal Revenue Service for help in figuring how much retirement income to report on federal taxes. This amount, used to compute federal adjusted gross income, is the amount from which New York taxpayers begin to figure state taxes. When a taxpayer completes a New York state income tax return, an opportunity to exclude up to $20,000 of pension and annuity income is provided. This includes distributions from IRAs. However, the guidelines clearly state that the exclusion is not to exceed $20,000 "regardless of the source(s) of the income." Suppose a taxpayer receives $20,000 from a 401k and $20,000 from an IRA. Here only half of the income would be eligible for exclusion from New York state income taxes.
According to a Department of Taxation and Finance's publication for retired residents of New York, the state has not mandated authorizing income tax withholding from retirement income. However, residents who expect to pay state income taxes on distributions from IRAs and other pension plans may elect voluntarily to have state income taxes withheld. Paying upfront can reduce the end-of-year tax burden for retired New Yorkers when the filing deadline arrives. In addition, New York imposes a penalty on taxpayers who "substantially" underpay income taxes during the year.
- New York State Department of Taxation and Finance: Publication 36 General Information for Senior Citizens and Retired Persons -- For Tax Year 2010
- New York State Department of Taxation and Finance: Information for Seniors
- New York State Department of Taxation and Finance: Resident Income Tax Return (Long Form) Instructions
- Retirement Living Information Center: Taxes by State