New York State has long been known as the “land of taxes.” Higher-than-average real estate, income, and sales taxes have been a reality for many years. However, New York offers some significant tax breaks to older residents, making it less onerous to retire and remain in the state.
Here are some of the major tax breaks a retiree in New York can look forward to:
Taxes on Social Security: The good news here is that all Social Security income is tax-free in New York, regardless of your income or the size of your Social Security benefit. The federal government may tax some of your Social Security benefit if your income is above certain guidelines, but New York will take a pass. This is an important benefit and a bonus for New Yorkers since 12 other states levy income taxes on Social Security benefits if their residents pay federal income taxes on the benefits.
Taxes on Retirement Income: New York gives every resident who is age 59.5 or older a break on taxes against retirement income from pensions and/or retirement account distributions. The first $20,000 of retirement income is exempt from tax. This includes income from a corporate pension, an Individual Retirement Account, a 401k account, or other retirement plan. Married couples get a double exemption, with each eligible for the $20,000 exclusion for a total of $40,000. This benefit applies to all taxpayers of any income level.
Taxes on Public Pensions: Workers with New York State or local government pensions, federal government pensions, or certain public authorities get an added break: No state income tax on their pensions, period.
Taxes on Your Home: New York offers the STAR program to reduce school property taxes for homeowners who have less than $500,000 in income. Once a homeowner reaches age 65, he or she can apply for an Enhanced STAR school tax reduction. The Enhanced STAR exempts the first $65,300 of the full value of a home from school property taxes. This extra exemption is limited to seniors whose income is less than $86,000. However, any taxable income from annuities or IRAs is NOT included in the income calculation.
Estate Taxes: The state recently changed its estate tax laws to move into conformity with the new, higher limits enacted in federal estate tax law. In short, since April 1 of 2017 each New York State resident can leave an estate of up to $5.25 million without owing any estate tax to New York. Starting in 2019, the $5.25 million exemption amount will be indexed to the federal exemption and will rise along with it.
Added Credit for Low Income Homeowners: If at least one member of a household is 65 or older, and the household’s gross income is $18,000 or less, there is a $375 tax credit payable to those who pay property taxes by virtue of being a homeowner, or who pay rent for their primary residence.
Richard Schroeder, CFP®
Chief Investment Officer