401(k) and 457 plan distributions and New York State tax: What to know

As a retired New York City employee, I don’t pay New York State taxes on my pension payments. Are the distributions from my 401(k) and 457 plans also considered annual retirement payments and therefore not subject to New York tax? If so, where do I claim them on my tax return?   

Like all retired government workers, you qualify for New York State’s unlimited tax exemption on income from federal, state and local government pensions. But that unlimited exemption doesn’t extend to your income from government 401(k) and 457 plans.

The good news: Those withdrawals qualify for a more modest tax break that’s available to all state residents — New York’s pension and annuity income exclusion on up to $20,000 of annual withdrawals from retirement accounts, including IRAs, annuities, traditional pensions, 401(k)s, 403(b)s and 457 plans.

The exclusion is available to New Yorkers as soon as they turn 59½ . (If you turned 59½ in August, for example, up to $20,000 of the retirement income you received in September, October, November and December would be exempt from New York taxes.)

There’s a place to claim these tax breaks on your New York State tax return, Form IT-201. On that form, you first list the income you reported on your federal tax return. Then under “New York additions,” list income that’s not federally taxable but is subject to state tax, like distributions from New York’s 529 college savings program. Then under “New York subtractions,” subtract federally taxable income that’s not subject to New York tax, including: pensions of state and local governments and the federal government; taxable amount of Social Security benefits; and the pension and annuity income exclusion.

The bottom line:

New York State’s tax breaks on retirement income can be claimed on Form IT-201.

More information:

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