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New York Retirement Tax Friendliness

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Overview of New York Retirement Tax Friendliness

In New York, all Social Security retirement benefits are exempt from taxation. Income from retirement accounts or a private pension is deductible up to $20,000. Sales and property taxes are both relatively high in New York.

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New York Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

New York is the fourth largest state in the U.S. with a population of nearly 20 million. Roughly half of that population lives in the greater New York City metropolitan area. Whether you plan on retiring in the city or somewhere further upstate – in the Adirondack Mountains, for example – it’s a good idea to be familiar with the Empire State’s retirement taxes.

When it comes to income taxes, New York State is very tax-friendly for retirees. All Social Security retirement benefits are exempt from taxation. Income from retirement accounts or a private pension is deductible up to $20,000.

There are several other types of taxes in New York that are not so favorable to retirees. The state’s sales taxes and property taxes both rank among the highest in the country. New York also has its own estate tax.

Is New York tax-friendly for retirees?

New York is moderately tax-friendly for retirees. It does not tax Social Security benefits and provides seniors a sizable deduction ($20,000) on other types of retirement income. Retirees in New York should have relatively low income tax bills.

On the other hand, the state’s average state and local sales tax rate is nearly 8.5% and property taxes are likewise fairly steep. The average effective property tax rate in New York State is 1.5%.

Is Social Security taxable in New York?

No. Social Security retirement benefits are not taxable under the New York state income tax, even if they are taxable at the federal level.

Are other forms of retirement income taxable in New York?

Yes, but they are deductible up to $20,000. Income from an IRA, a 401(k) or a company pension are all taxable. Seniors, age 60 and older, are eligible for the $20,000 deduction. This applies to the total of all retirement income. Any retirement income that exceeds the $20,000 deduction will be taxed according to the rates show in the table below.

State Income Tax Brackets

Single Filers
New York Taxable IncomeRate
$0 - $8,4004.00%
$8,400 - $11,6004.50%
$11,600 - $13,7505.25%
$13,750 - $21,1505.90%
$21,150 - $79,6006.45%
$79,600 - $212,5006.65%
$212,500 - $1,062,6506.85%
$1,062,650+8.82%
Married, Filing Jointly
New York Taxable IncomeRate
$0 - $16,9504.00%
$16,950 - $23,3004.50%
$23,300 - $27,5505.25%
$27,550 - $42,4505.90%
$42,450 - $159,3506.45%
$159,350 - $318,7506.65%
$318,750 - $2,125,4506.85%
$2,125,450+8.82%
Married, Filing Separately
New York Taxable IncomeRate
$0 - $8,4004.00%
$8,400 - $11,6004.50%
$11,600 - $13,7505.25%
$13,750 - $21,1505.90%
$21,150 - $79,6006.45%
$79,600 - $212,5006.65%
$212,500 - $1,062,6506.85%
$1,062,650+8.82%
Head of Household
New York Taxable IncomeRate
$0 - $12,7004.00%
$12,700 - $17,4504.50%
$17,450 - $20,6505.25%
$20,650 - $31,8005.90%
$31,800 - $106,2006.45%
$106,200 - $265,6006.65%
$265,600 - $1,594,0506.85%
$1,594,050+8.82%

One exception to this is public pension income. Pension income that is paid by the New York State government, a local New York government or the federal government is exempt from all state income taxes.

How high are property taxes in New York?

Fairly high. The state’s overall average effective rate is 1.5%, which implies $1,500 in property taxes for every $100,000 in home value. Rates in New York City are far lower than that, averaging 0.70% across the city’s five boroughs. But high home values mean property tax bills can still be astounding. For example, the median annual property tax paid by homeowners in Manhattan is about $6,600.

High property taxes are one reason that overall housing costs in New York are among the highest in the country. On average, housing costs are 95% higher in New York than the national average. In many cities and towns upstate, however, housing costs are not nearly that high.

What is the New York STAR exemption?

There are two STAR property tax exemptions in New York: the basic exemption and the enhanced exemption. The basic exemption has no age restriction. It is available to any homeowner with household income less than $500,000. It exempts the first $30,000 in home value from school taxes.

The enhanced exemption is available only to senior citizens who are at least 65 years old. It has the same income restriction as the basic STAR exemption, but exempts the first $65,300 in home value from school taxes. (It does not apply to other types of taxes, such as general city or county taxes.)

Photo credit: ©iStock.com/MACIEJ NOSKOWSKI

How high are sales taxes in New York?

The average rate in New York, including the statewide rate of 4% and averaging all city and county rates, is 8.48%. That is the seventh highest rate in the U.S. Someone who spends $10,000 dollars a year on taxable goods would be spending about $850 on sales taxes at that rate.

Not all products are subject to sales tax in New York. Groceries are usually exempt, as are clothing items costing less than $110. Both prescription and over-the-counter medicines are also exempt from sales tax in New York.

What other New York taxes should I be concerned about?

New York State has its own estate tax, which is collected in addition to the federal estate tax. The current exemption is close to $2 million, but that will be increasing to match the federal exemption over the next few years. Estate tax rates for amounts above that exemption in New York range from 5% to 16%.

Retirees who plan on supplementing their retirement income with investment income (from investments that are not held in a retirement account) may also have to pay capital gains taxes. Capital gains are considered regular income in New York and taxed at the state’s income tax rates (shown in the table above).

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2015 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration

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