Taxes After Retirement

Calculating post-retirement expenses is crucial to retirement planning. For instance, predicting how much you will pay in taxes can be difficult, because your tax bill depends on your individual circumstances. Most retirees spend less on taxes than they did when they were working, largely because their incomes have gone down. But there are other reasons you may have a lighter tax burden after retirement.

taxes after retirement

New York State Taxes

As a NYSLRS retiree, your pension will not be subject to New York State income tax. New York doesn’t tax Social Security benefits, either.

You may also get a tax break on any distributions from retirement savings, such as deferred compensation, and benefits from a private-sector pension. Find out more on the Department of Taxation and Finance website.

Be aware that you could lose these tax breaks if you move out of New York. Many states tax pensions, and some tax Social Security. For information on tax laws in other states, visit the website of the Retired Public Employees Association.

Federal Taxes

Unfortunately, most of your retirement income will be subject to federal taxes, but there are some bright spots here.

Your Social Security benefits are likely to be taxed, but at most, you’ll only pay taxes on a portion of your benefits. You can find information about it on the Social Security Administration website. (If you’re already retired, use the Social Security Benefits Worksheet in the Form 1040 instructions to see if any of your benefits are taxable.)

Throughout your working years, you’ve paid payroll taxes for Social Security and Medicare. For most workers, that’s 6.2 percent (Social Security) and 1.45 percent (Medicare) out of every paycheck. But Social Security and Medicare taxes are only withheld from earned income, such as wages. Pensions, Social Security benefits and retirement savings distributions are exempt. Of course, if you get a paying job after retirement, then Social Security and Medicare taxes will be deducted from that pay check.

Once you turn 65, you may be able to claim a larger standard deduction on your federal tax return. For more information on the amounts of this deduction, please see the 2018 IRS Tax Map.

To better understand how your retirement income will be taxed, it may be helpful to speak with a tax adviser.

14 thoughts on “Taxes After Retirement

  1. Daniel Goodman

    I am on the cusp of retirement. My supervisor recommended I sign up for these info emails. There are at least two sentences in each of the past emails, that have addressed information that I have been searching for. You folks have certainly taken the edge off of the retirement question anxiety. Many thanks and … keep ’em comin’.

    Reply
    1. Gail M Davis

      You received a tax deduction on money you contributed like other retirement plans so it’s taxed upon withdrawl

      Reply
  2. Stephanie

    Why does it say “if you stay in NYS you won’t have to pay NYS taxes”? I plan to leave NYS so why would I pay NYS taxes if I no longer live in NYS?

    Reply
    1. NYSLRS Post author

      New York State does not tax your NYSLRS pension as income, so you wouldn’t pay State tax no matter where you live. However, many other states do tax pensions. As you plan for your retirement, you may want to take a look at the Retired Public Employees Association website. They track which states tax pensions, Social Security and 457 plan distributions.

      Reply
    2. Margaret Aderman

      Search for “Pension tax by state” to find a list. You’ll need to do more specific research with the state you plan to relocate to. The link mentioned in NYSLRS’s reply is a good place to start.

      Reply
  3. Margaret Aderman

    May I change the number of my Federal withholding allowances in the future, if I find that the initial selection isn’t appropriate?

    Reply
    1. NYSLRS Post author

      Certainly. You can change your tax withholding status at any time by filing a W-4P form. You can mail it to the address on the form, or fax it to 518-486-3252.

      For help completing a W-4P form, visit our Understanding your W-4P Form interactive tutorial.

      Our Withholding Tax Calculator can tell you how much will be withheld based on your marital status and the number of exemptions you choose (for example, married with 1 exemption or single with 0 exemptions).

      Reply
  4. Janet Sullins

    What does the mandatory contribution balance mean? Do I still owe money before I can collect?

    Reply
    1. NYSLRS Post author

      The NYSLRS social media team doesn’t have access to your personal account information. We suggest that you email your question to our customer service representatives using our secure email form (http://www.emailNYSLRS.com), and let them know what you are looking at that shows a mandatory contribution balance. One of our representatives will review your account and respond to your questions. Filling out the secure form allows us to safely contact you about your personal account information.

      Reply

Leave a Reply