State Income Tax Rules for Retirees in NY, NC, and FL

State-Specific Retirement | by Jules Buxbaum | Wednesday, February 05, 2025

State income tax for retirees in NY, NC, and FL can be a game-changer if you plan to spend your golden years in one of these states. Retirees, including both long-time residents and those looking to relocate, often wonder how each state treats pension income, 401(k) distributions, and Social Security benefits.

If you want a closer look at how these rules compare side by side, you can explore our detailed overview of state-specific tax benefits for retirees in these regions. This helps you see which state may offer the friendliest environment for your retirement goals, especially if you’re trying to maximize your hard-earned savings.

Why State Taxes Matter for Retirees

Taxes can impact your retirement spending power more than you might think. When you’re on a fixed income, every dollar withheld by state authorities could affect your budget for housing, travel, and healthcare.

Many individuals weigh property taxes, estate taxes, and sales taxes alongside income taxes. Yet for most, the primary concern is whether their monthly income from Social Security, a pension, or a 401(k) will drop once state taxes are applied.

New York: Taxation Overview

New York relies on a progressive tax structure, with rates ranging from 4% to 10.9% for high earners. According to the New York State Department of Taxation and Finance (2023), Social Security benefits are not taxed, which can offer relief for retirees who depend heavily on those monthly checks.

Public pensions from the federal, state, or local government are usually exempt, but private pensions and annuities can be taxed. Fortunately, retirees 59½ or older may claim up to a $20,000 exclusion on qualifying pension or annuity income, including certain 401(k) distributions. A retiree drawing $30,000 from a 401(k) could exclude $20,000, leaving $10,000 subject to tax. Some also benefit from the Enhanced STAR property tax exemption, which can help address New York’s relatively high property taxes.

Despite having higher income and property taxes compared to many states, New York offers vibrant cultural amenities and top-notch healthcare facilities. Many retirees choose to stay, especially if they can balance their income needs and tax responsibilities.

North Carolina: Flat Tax System with a Twist

North Carolina applies a single flat rate for all taxable income. In 2023, this rate is 4.75%, and it’s set to decrease to 3.99% by 2027 (Tax Foundation, 2023). That makes the state’s tax system straightforward, although not entirely free of retirement income taxes.

Like New York, North Carolina does not tax Social Security benefits. However, most other forms of retirement income—such as 401(k), IRA, and private pensions—are generally taxed at the flat rate. Government retirees covered under the “Bailey settlement” may qualify for exemptions if they had at least five years of creditable service by August 12, 1989. Not everyone meets the criteria, so it’s crucial to confirm your eligibility before filing.

North Carolina’s property tax rates tend to be moderate, which can offset some of the flat income tax you’d pay as a retiree. Coupled with a lower cost of living than New York, the Tar Heel State remains an appealing choice for many planning these life transitions.

Florida: No Income Tax for Retirees

Florida’s key attraction for retirees is its complete lack of a state income tax. Whether you receive Social Security checks, private pensions, or withdrawals from an IRA, the Sunshine State will not take a bite out of that money.

According to Kiplinger (2023), Florida is one of only a handful of states with no personal income tax at all. This policy, combined with warm weather, has historically drawn hundreds of thousands of retirees seeking tax relief. Florida’s property taxes can vary by county, yet homestead exemptions and the “Save Our Homes” cap keep costs predictable for many long-term residents.

This low-tax climate does come with certain trade-offs. Some counties rely on higher sales taxes or fees. Regardless, retirees who prioritize minimal taxation typically find Florida appealing, especially if they also appreciate year-round outdoor activities.

Key Categories for Comparison

Although income tax is often the top concern, other levies might influence your retirement budget. Here are a few categories to weigh carefully when comparing these states:

Social Security Taxation: All three states—NY, NC, and FL—exclude Social Security from state taxes, which is beneficial given that Social Security often forms the core of many retirees’ incomes.
Pension and Annuities: New York offers a partial exclusion for qualifying retirement income, North Carolina taxes most pensions at its flat rate (unless you have the Bailey exemption), and Florida imposes no tax at all.
401(k) and IRA Distributions: These are frequently taxed in New York and North Carolina (beyond any exclusions), but not in Florida.
Estate and Inheritance Taxes: New York still levies an estate tax for estates exceeding certain thresholds, while Florida and North Carolina do not.
Property Taxes: New York’s property taxes rank among the highest nationwide, North Carolina sits in a moderate range, and Florida falls somewhere in between but offers homestead benefits.

Because of these differences, each retiree’s personal situation warrants a closer look. If Social Security is your only significant income, New York or North Carolina might not feel overly burdensome. But if you have large pension distributions or significant IRA withdrawals, Florida’s zero-income-tax model can free up extra cash each year.

Using 2Pi Financial’s Tools to Plan Your Retirement

Evaluating whether to retire in NY, NC, or FL involves more than just taxation; factors like climate, cost of living, and proximity to family matter too. Still, taxes play a sizeable role in any thorough plan. Our firm, 2Pi Financial, specializes in retirement strategies built around individual wealth, earning potential, and market analysis.

One option is to test different scenarios through our in-house planning solution. The Two Pi Financial Planner walks you through possible outcomes based on target retirement age, expected withdrawals, and risk tolerance. You can tweak parameters—like choosing another state to live in—and quickly see how it affects your portfolio longevity.

Additional Ideas for Minimizing Taxes

Aside from moving to a more favorable tax jurisdiction, you might consider timing your 401(k) or IRA withdrawals strategically. Spreading out distributions so you remain in a lower tax bracket can help you retain more of your money.

Roth conversions may also reduce future taxable income, although that often involves paying taxes on conversions earlier. If you’d like more details, check out our suggestions on how to minimize taxes on your retirement income. Even small adjustments can impact the resources you’ll have later in life.

For many Americans, Social Security forms a vital component of retirement funding. Thankfully, retirees in these three states do not pay state taxes on Social Security benefits. That exemption offers meaningful relief, especially if you rely heavily on these monthly checks.

If you want the full scoop on how each state deals with Social Security, explore our resource on how each state treats Social Security benefits. You’ll find specific thresholds and any unique rules that may apply.

Bottom Line

Each state’s approach to taxing retirement income can either save you thousands of dollars or erode a portion of your nest egg. The better you understand these dynamics, the easier it becomes to gauge where you might thrive in your retirement years.

If you’re still weighing whether to stay in the Empire State, hop over to North Carolina, or enjoy the Florida sunshine, consider your long-term goals, asset allocations, and future healthcare needs. For more practical guidance on lifestyle costs in each state, our rundown of the best places to retire in NY, NC, and FL might help you narrow your choices.

Deciding where to retire is personal, and taxes are only one piece of the puzzle. But with a clear look at state income tax rules, you can move forward with a strategy that helps preserve more of your hard-earned funds.

References

• Kiplinger. (2023). “Retirement Taxes: How All 50 States Tax Retirees.” Available at: https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees

• New York State Department of Taxation and Finance. (2023). “Information for Retired Persons.” Available at: https://www.tax.ny.gov/pit/file/information\_for\_seniors.htm

• Tax Foundation. (2023). “State Individual Income Tax Rates and Brackets for 2023.” Available at: https://taxfoundation.org/data/all/state/state-income-tax-rates/

• SmartAsset. (2023). “New York Retirement Taxes.” Available at: https://smartasset.com/retirement/new-york-retirement-taxes

• U.S. Census Bureau. (2022). “Population and Housing Unit Estimates.” Available at: https://www.census.gov/programs-surveys/popest.html