Does New York Tax Social Security Benefits?
Learn how New York's tax code differs from federal rules, allowing for a full subtraction of Social Security benefits on your state income tax return.
How Social Security benefits are taxed can be confusing, as rules differ between the federal government and the state where you reside. For residents of New York, understanding the interplay between these two tax systems is necessary for accurate tax filing and financial planning. This article will clarify the specific tax treatment of Social Security income at both the federal and state levels for New Yorkers.
Federal Taxation of Social Security Benefits
The federal taxation of Social Security depends on a figure the IRS calls “combined income,” also known as provisional income. This is calculated by taking your adjusted gross income (AGI), adding any non-taxable interest, and then adding one-half of your total Social Security benefits for the year.
For individuals filing a single return, if your combined income is between $25,000 and $34,000, you may have to pay federal income tax on up to 50% of your benefits. If your combined income exceeds $34,000, up to 85% of your benefits could be taxable. For those married and filing a joint return, up to 50% of benefits are taxable for a combined income between $32,000 and $44,000, and up to 85% becomes taxable if income surpasses $44,000. It is this federally taxed portion that becomes relevant for your state return.
New York State Tax Exemption
New York State completely exempts Social Security income from state taxation. This means that any amount of your Social Security benefits that the federal government includes in your federal adjusted gross income (FAGI) is deductible on your New York return. This exclusion is not limited by income level.
For full-year New York residents, all federally taxed Social Security benefits can be subtracted. Part-year residents, however, may only subtract the portion of benefits they received while living in the state. Since New York City’s income tax is calculated based on New York State’s taxable income, the exemption of Social Security benefits automatically flows through, making them exempt from city income taxes as well.
How to Claim the Subtraction on Your Tax Return
To take advantage of this exemption, you must report it as a specific “subtraction modification” on your New York State income tax return. For full-year residents, this is done on Form IT-201. The process begins with your Federal Adjusted Gross Income, which includes the taxable portion of your Social Security benefits. You then subtract this federally taxed amount on the New York return.
To do this accurately, you will first need to identify the taxable amount of your benefits from your federal return, Form 1040. This figure is then entered on the designated line for Social Security subtractions on Form IT-201. This direct subtraction is the mechanism that makes Social Security benefits tax-free in New York.