If you’re applying for a disability pension in New York State, you may be wondering, “Is a disability pension taxable in New York?” The answer is: it depends. Although many pensions are subject to federal tax, there are exceptions. State taxes may also apply if you relocate.
What is a Disability Pension in New York?
Disability pensions come in many forms. This overview focuses on disability pensions available to employees of New York State and other participating employers through the New York State and Local Retirement System (NYSLRS).
You may qualify for disability retirement benefits if you’re a current or former New York State employee. You might qualify for one of the following disability benefits programs if you can’t work because of a mental or physical condition:
- Ordinary Disability
- Accidental Disability
- Performance of Duty Disability
- World Trade Center Presumption Disability
Review your situation with an experienced disability employment lawyer to determine which program you might qualify for. You can apply for multiple disability retirement benefits if you believe you qualify for multiple programs.
The criteria to qualify for a disability pension varies from program to program. For example, to receive an ordinary disability pension, you must meet a minimum service requirement. It’s usually ten years, but this can vary.
You’ll collect benefits in the form of a retirement pension if you receive approval. The benefits will continue as monthly payments for the rest of your life.
Is Disability Pension Income Taxable in New York?
Disability pensions through NYSLRS are usually subject to federal income tax. That said, some are not. Review the terms and details of your pension to confirm whether federal income tax applies.
You’ll typically complete a W-4P form when applying for a disability pension through NYSLRS. NYSLRS will use the information you provide to calculate your federal tax withholding. NYSLRS applies a default withholding if you don’t provide your own information.
You can check Retirement Online to find out what your current withholding is. You can also change your withholding online.
You may have made after-tax NYSLRS contributions while you were still working. If so, federal tax might not apply to a small part of your overall benefits.
Look at Box 5 on your 1099-R tax form. The amount in Box 5 is the non-taxable portion of your benefit. When filing a tax return, only report the taxable amount found in Box 2a.
State Taxes Don’t Apply to Disability Pensions in New York
While a New York State disability pension is usually subject to federal income tax, it’s not subject to state tax in New York. However, state tax may apply if you move away. The Retired Public Employees Association offers information about whether state taxes will apply depending on what state you move to.
NYCERS Disability Pensions and Taxes in New York
NYSLRS disability retirement benefits are available for State employees and employees of participating employers. If you are or were an NYC employee, you may qualify for a disability pension through the NYC Employees’ Retirement Program (NYCERS).
The same taxation rules generally apply. NYCERS disability pensions are subject to federal taxes, but not state taxes. State taxes may apply if you move, depending on the rules in your new state.
Some of your NYCERS pension payments may not be subject to federal income taxes. If you made contributions that were deducted from your paycheck, these will be tax-free.
As with NYSLRS disability pensions, you will receive an annual 1099-R from NYCERS. Check the form to find out whether there is any portion of your pension that isn’t federally taxable. Both NYCERS and NYSLRS encourage disability pension recipients to contact them directly if they have questions about this matter.
Contact a New York Disability Pension Lawyer Today
Determining your tax liability is just one task you might have to address when applying for disability retirement benefits in New York. You’ll also need to:
- Provide medical evidence showing you qualify for a disability pension
- Provide documentation showing you meet the other criteria for the program you’re applying for (such as years of service criteria)
- Complete paperwork and submit it by filing deadlines
- Track and respond to any correspondence you receive from NYSLRS throughout the process
You don’t have to handle these tasks alone. A New York disability pension lawyer with [firm-name] can answer your questions and handle these tasks on your behalf. Learn more about how we can help by contacting us online or calling us at 516-496-0400 for a free case review.