Hello,

Are 401K Contributions taxable in NY state Personal Income Tax ?
I know they are taxable in PA. What is the reason for this disparity ?

I already pay taxes on my 401K Contributions living in PA. If I move to a state that does not tax 401K Contributions , but taxes Withdrawals , I would be paying the state tax twice on this income. Once when I contributed and again when I withdraw. Is that not considered double taxation ?

Thank you,

Hello PaResident. I believe you are correct - in NY State your 401(k) contributions are not incuded in your taxable income, but distributions are. In PA it's the other way around - deferred salary like 401(k) contributons are included in your taxable income, but distributions are not (as long as they are "normal" distributions, typically after age 59-1/2). So yes, if you move from PA to NY and retire in NY then you are taxed at both ends. Convesely - if you work in NY and then retire to PA you skip all state taxes on your 401(k) altogether.

The reason for the disparity? Two different different state legislatures, so two different approaches. Perhaps PA figures that with their significantly lower tax rate they need to include all your compensation in its tax - even your deferred compensation - and perhaps they have a stronger AARP lobby that succeeded in getting all retirement payouts to be tax exempt. It appears that NY does what a lot of states do, which is to essentially use the federal rules for what gets taxed in your compensation - perhaps that makes it easier for their tax department to enforce. There are many, many differences in tax rules between the states - consider for example the fact that there are several states that have no income tax at all.