Taxation on Pensions in New York State

Getting a pension from New York state reduces the amount of work you have to do in regard to saving money. The state kicks in for your retirement benefit, providing a payment based on your years of service, as well as on your income while you worked for the state. Although you're free to save money on your own, it might not be necessary if your pension is significant. Plus, New York state treats government workers favorably in terms of taxes on their pension income.


Your New York pension income isn't taxed. When you retire from work as a state employee, your pension income is free of the state's income tax. You also don't pay tax if you worked for a local government and receive a pension. For example, if you work for a town or even a city in New York state, your pension is exempt from taxation. There's no need to claim this money on your tax return, either, though you have to claim any amounts you earn on a federal tax return.


Because New York doesn't tax pensions derived from New York state, you get more money than you otherwise would when you retire. This may be especially beneficial if you live in New York City, as New York City residents, as well as those living in Yonkers, are subject to additional taxes on top of state taxes.


New York state limits its exemptions to in-state pensions. Any pensions you receive from out of state may be exempt up to $20,000. New York also limits exemptions from private pensions to $20,000. Your private pension and out-of-state pension exemption is a combined exemption. For example, if you receive $20,000 of out-of-state pension income and $20,000 of IRA income, then your total retirement income is $40,000. Only $20,000 of this is exempt from New York income tax.


Even if you receive a pension from New York, you should still consider keeping a personal savings. If your pension is significant, consider putting aside a portion of that income for the future. You may need this money in your advanced age to pay for emergency expenses. Even saving money outside of the pension plan is helpful, regardless of your pension income amount.