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Tool | October 2015

State-by-State Guide to Taxes on Retirees

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New York

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The Bottom Line
Map of New York

Least Tax-Friendly

One of Kiplinger's top ten least tax-friendly states for retirees, the Empire State has some of the highest property taxes in the U.S. On average, New Yorkers fork over 12.6% of their income in state and local taxes, according to the Tax Foundation. But retirees catch several breaks. The state does not tax Social Security benefits or public pensions. There is also an exemption of up to $20,000 for private pensions and out-of-state government pensions. New York state law gives local governments and public school districts the option of granting a reduction of the amount of property taxes paid by qualifying seniors 65 and older.

State Sales Tax

4% (food and prescription and nonprescription drugs are exempt, as are greens fees, health club memberships, and most arts and entertainment tickets). Local taxing entities have additional sales taxes ranging from 3% to 4.75%. In the New York City metro area, there is an additional 0.375% sales tax. In New York City, clothing and footwear that cost less than $110 are exempt from sales tax.

Income Tax Range

Low: 4.0% (on up to $8,200 of taxable income for single filers and up to $16,450 for married couples filing jointly)

High: 8.82% (on taxable income over $1,029,250 for single filers and over $2,058,550 for married couples filing jointly)

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Military, civil-service, and New York state and local government pensions are exempt. Up to $20,000 of qualified private pensions and annuity income for people 59 1/2 and older are also exempt. Out-of-state government pensions can be deducted as part of the $20,000 exemption. Railroad Retirement benefits are not taxed.

IRAs

Qualifies for the retirement-income exemption.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Qualifies for the retirement-income exemption.

Private Pensions

Qualifies for the retirement-income exemption.

Public Pensions

Military, civil service, and New York state and local government pensions are exempt. Out-of-state government pensions qualify for the retirement-income exemption.

Property Taxes

A taxpayer's primary residence may be partially exempt from school taxes through a homestead exemption under the state's School Tax Relief (STAR) program. The Basic STAR exemption is available for owner-occupied, primary residences for people with a combined income of less than $500,000, regardless of the owners' ages. Basic STAR exempts the first $30,000 of the full value of a home from school taxes.

Median property tax on New York's median home value of $277,600 is $4,559, according to the Tax Foundation.

Tax breaks for seniors: New York State law gives local governments and public-school districts the option of granting a reduction on the amount of property taxes paid by qualifying senior citizens by reducing the assessed value of residential property owned by seniors by 50%. To qualify, seniors must be 65 or older and meet certain income limitations and other requirements. For the 50% exemption, the law allows each county, city, town, village or school district to set the maximum income limit between $3,000 and $29,000. Under the so-called sliding-scale option, localities may also grant an exemption of less than 50% to senior citizens with yearly incomes between $29,000 and $37,399,99.

There is also an Enhanced STAR program for seniors. The Enhanced STAR exemption is available for the primary residences of senior citizens (age 65 and older) with annual household incomes not exceeding the statewide standard. Combined income must be $84,550 or less for 2015. For qualifying senior citizens, the Enhanced STAR program exempts the first $65,300 (for 2015 to 2016 school tax bills) of the full value of their home from school property taxes.

You may qualify for a state income tax credit of up to $375 if at least one member of the household is 65 or older, household gross income is $18,000 or less, and you pay either property taxes or rent.

Inheritance and
Estate Taxes

Estates exceeding $3,125,000 are subject to estate tax in fiscal year 2015-2016, with a top rate of 16%. Each fiscal year, the exemption will rise by $1,062,500 each April 1 until it reaches $5,250,000 in 2017. Starting Jan. 1, 2019, it will be indexed to the federal exemption then in place. There is no inheritance tax.

But, the state estate tax is a "cliff tax." That means if the value of the estate is more than 105% of the current exemption, the exemption won't be available and the entire estate will be subject to state estate tax.

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