Background for NYSID alums

As all NYSID alums know, our NYS pensions are not subject to taxation by New York State. However, any distributions from 401(k) plans, IRAs, private pensions, etc. are subject to taxation on annual amounts exceeding $20,000. One of our members recently alerted us to Senate Bill S414A which seeks to increase the $20,000 tax-free limit. Here is a summary of the Bill. For more information, go to:

https://www.nysenate.gov/legislation/bills/2017/s414/amendment/a

Senate Bill S414A

2017-2018 Legislative Session

Increases the tax exemption for private pensions and annuities for persons age fifty-nine and one-half or greater

See Assembly Version of this Bill:

A690A

Law Section:

Tax Law

Laws Affected:

Amd §612, Tax L

Versions Introduced in 2015-2016 Legislative Session:

S2903C, A6413B

S414A (ACTIVE) - SUMMARY

Increases the tax exemption for pensions and annuities for persons age fifty-nine and one-half or greater from $20,000 to $25,000 in 2019, $30,000 in 2020, $35,000 in 2021 and $40,000 for each subsequent year.

S414A (ACTIVE) - SPONSOR MEMO

BILL NUMBER: S414A Revised 2/9/18

TITLE OF BILL : An act to amend the tax law, in relation to increasing the exemption for pensions and annuities for certain persons

SUMMARY OF PROVISIONS :

Section 612(c)(3-a) of the Tax Law is amended to increase the amount of private pension and annuity income that is exempt from New York State income taxes. The current exemption level of $20,000 would be increased to $25,000 for the 2019 taxable year, to $30,000 for the 2020 taxable year, to $35,000 for the 2021 taxable year, and to $40,000 in the 2022 and subsequent taxable years.

EXISTING LAW :

Government pensions (state, local, federal, military) are fully exempt from NYS income taxes. In contrast, only the first $20,000 of income from private pensions and annuities is tax exempt.

JUSTIFICATION :

The current $20,000 tax exemption level for private pension income was established in 1981, and has not been adjusted during the intervening 35 years. This bill provides a much needed update in the amount. The exemption was enacted in 1981 in an effort to assist senior citizens. The 1981 law also sought to help treat the recipients of private pensions more fairly in comparison to the treatment of persons who receive government pensions, which are fully exempt from state income taxes pursuant to the State Constitution.

The 1981 law compromised on a tax exemption level of $20,000 for private pensions. Based on the Consumer Price Index, the $20,000 level established in 1981 would be the equivalent of more than $54,000 in 2018.

This bill would enact the first increase in the exemption threshold since the law was passed in 1981. It would phase in the increase by $5,000 per year to a maximum exemption of $40,000.

An updated exemption level will help address the inequity in the tax treatment of private pensions and government pensions, which are tax exempt under the State Constitution.

We all know that New Yorkers are overtaxed, over-ticked and over-fined. This bill is another measure to make New York more affordable by reducing the tax burden for retirees. This is all the more important in light of the recent federal tax reform law.

In addition, reducing the tax burden on older New Yorkers will help encourage retirees to remain in New York State during their retirement years. The increase will also enable older New Yorkers to keep more of their income at a time when many find it difficult to return to the workforce in order to supplement their income. Increasing the tax-exempt amount may also encourage younger persons to save money for their retirement in pensions, 401(k)s, IRAs, etc.

LEGISLATIVE HISTORY:

2015 & 2016: S.2903 - Passed Senate.

2017: S.414 - Passed Senate.

EFFECTIVE DATE :

This act would take effect immediately.