State tax filing

Instead of recording this on a worksheet, enter this instead as a 1099R in the step-by-step section. Worksheets sometimes are confusing and unless you are really tax-savvy, mistakes can be made. Here is how to properly record the information.

1. First remove all information you recorded on your worksheet.
2. Now, go to Retirement Plans in the income section of your returns in step by step.
3. Select IRA, pension plans withdrawals (1099R) etc
4. Record your 1099 R with Code 4 recorded in Box 7.
5. After you record your 1099R, there will be follow-up questions about who you inherited this 1099 R from. Here you will enter information about your mother since you inherited the plan from her.
6. There will be follow-up screens asking about RMD information.
7. It'll ask what  RMD requirement was for this year.  If it's for the full amount of the distribution list, the full amount.
8. Then there will be a follow-up screen. Here indicate that the entire distribution is applied to the December 31, 2024 RMD.

1 Why does New York State need to know?

New York State has specific tax rules regarding pensions. Generally, pensions from NYS or local governments, the federal government, and certain public authorities are not taxable in NYS. However, private pensions and annuities are taxable, though retirees over 59½ may qualify for a $20,000 exclusion. Since your pension is fully taxable, NYS likely requires this information to determine whether any exclusions apply or if additional state taxes are owed. 

According to NYS, $20,000 may be excluded from your taxable income and this is why you are being asked these additional questions on your NYTS return.

3. How does this affect your taxes?

• Federal Taxes: Your pension distributions are fully taxable, meaning they will be included in your gross income and taxed at your applicable rate. State Taxes: If NYS considers your pension taxable, you may owe state income tax unless you qualify for exclusions.
• 10-Year Distribution Rule: Since the pension must be fully distributed within 10 years, you may need to plan for higher taxable income in later years, which could push you into a higher tax bracket.