Understanding New York State Pension Tax Rules

Pensions in New York State are taxed differently than other sources of income. New York treats this income as tax free in some instances, and only partially exempt in other instances. Knowing when you receive a benefit helps you determine what you owe. This is important, since not paying your New York State taxes may result in significant and severe penalties.

Government Pensions

Government pensions include Social Security income, military benefits, civil service pensions and New York state and local government pension plans. These plans are all exempt from income tax in New York. This benefit extends to firefighters, police officers, teachers and corrections officers. If you are a spouse of a government worker or a former spouse receiving money from your ex-spouse's retirement as a result of a domestic relation's order, the income derived from this court order is also exempt from income tax to the extent that it is included in your federal income tax return.

Private Pensions

Private pensions include all private corporate pensions and qualified annuity income. This also includes all out of state government pensions. The exemption for these income sources is $20,000. This means that the first $20,000 of income you receive in not included on your state tax return. However, any money in excess of this amount is included on your return and is taxable.

Benefit

Regardless of your source of income, the partial or full exemption gives you more money than you otherwise would have if you didn't receive an exemption at all. Even with the partial exemption, you may receive all of your pension income tax free if your pension is a small one.

Consideration

The exemption in New York State does not include any money from a private annuity. Even though New York provides an exemption for qualified annuities, this qualified annuity means money from an annuity inside of an ERISA qualified plan. These plans include 403b plans and annuities inside of an IRA. Annuities you purchase with your own money outside of requirement plans are not excluded from taxation.