New York Tax Planning for Retirees, RSUs and ISOs

This page is for educational purposes only and does not constitute personalized financial, tax, or investment advice. Tax figures reflect rules in effect for 2026 as of October 2026 and can change. Willcox Wealth Management is a registered investment adviser; registration does not imply a certain level of skill or training. Please consult with a qualified professional before making financial decisions based on the information presented here.

The New York rates behind every decision

New York State taxes income at rates from 3.9% to 10.9% in 2026, and living in one of the five boroughs adds New York City's own income tax of 3.078% to 3.876%. For a married couple whose taxable income falls in the state's 6.85% bracket (about $323,000 to $2.16 million in 2026), each additional $10,000 of income costs roughly $1,070 in state and city tax on top of federal tax.

Long-term capital gains get no special rate in New York. A gain that qualifies for a 15% or 20% federal rate is taxed by the state and city at the same rates as wages, so the timing of a Roth conversion, an RSU vest or a large stock sale carries more weight here than in most states.

For retirees and pre-retirees

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Keeping more of your retirement income in New York

Where New York gives retirees a break

Social Security benefits are fully exempt from New York income tax. Pensions from New York State, local governments and the federal government are exempt too, which covers plans such as the New York State and New York City teachers' retirement systems as well as military pensions.

Private pensions and IRA withdrawals get a partial break once you reach 59½. New York excludes up to $20,000 a year of that income, and each spouse with qualifying income gets a separate $20,000. In a hypothetical example, a married couple who are both 62 and each withdraw $20,000 from their own IRAs can take $40,000 a year out of pre-tax accounts with no New York State or New York City income tax on it, although federal tax still applies. Because the exclusion resets each January and unused amounts don't carry forward, it's worth planning withdrawals so you use it every year once you qualify.

Roth conversions with the state rate in the math

New York taxes a Roth conversion as ordinary income in the year you convert, so the state and city rate belongs in the decision alongside your federal bracket and Medicare's IRMAA surcharge. Where you expect to live in retirement changes the answer. If a move to a state without an income tax is part of the plan, large conversions can wait until the move is complete. When New York is home for good, the state tax gets paid at some point regardless, and the federal brackets decide how much to convert each year.

Retiring somewhere else

New York can treat you as a resident under two separate tests. Domicile is the place you treat as your permanent home, and changing it takes evidence that your life has moved, starting with where you spend most of the year and where your family and work are centered. Statutory residency reaches people whose domicile is elsewhere when they keep a permanent place to live in New York and spend more than 183 days in the state during the year.

High earners who leave are frequent audit targets, and the audit tends to arrive a year or more after the return is filed. Auditors use credit card statements and E-ZPass data to count days, so a log kept at the time carries far more weight than one rebuilt later. A business sale or a big Roth conversion completed before the move is final still gets taxed by New York.

The estate tax cliff

New York has its own estate tax with an exemption of $7.35 million per person in 2026, less than half the $15 million federal exemption. Above 105% of that amount ($7,717,500 in 2026), the exemption disappears and New York taxes the entire estate from the first dollar, at rates up to 16%. Families with a paid-off apartment and sizable retirement accounts sit closer to that line than they expect.

Gifts made within three years of death are added back to the New York estate, so late-life gifting does less than people assume. Will provisions written with the cliff in mind and charitable bequests that bring an estate back under the threshold are worth raising with your estate attorney.

For professionals with equity compensation

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RSUs and stock options in New York

RSUs are taxed as wages when they vest

When RSUs vest, New York State and New York City tax the full value of the shares as wages, at the same rates as your salary. Check the state and city withholding on each vest against your actual bracket, the same way you would for federal tax, so a large vest doesn't leave a balance due in April. RSUs that vest after you move out of New York can still carry New York tax, because the state taxes the share of the income tied to days you worked in New York between the grant and the vest.

ISOs reward good timing

Incentive stock options can be one of the most tax-efficient forms of equity pay a New Yorker receives when they're exercised at the right time. Exercising creates no regular federal or New York income tax. If you then hold the shares at least two years from the grant date and one year from the exercise date, the whole gain from your strike price to the sale price is taxed at federal long-term capital gains rates of up to 20% (plus the 3.8% net investment income tax for high earners), compared with ordinary income rates of up to 37% on most other pay.

Timing matters because of the federal alternative minimum tax. The spread between your strike price and the stock's value on the day you exercise counts as income for AMT, even though you haven't sold anything. For 2026 the AMT exemption is $140,200 for married couples filing jointly ($90,100 for single filers), and it starts phasing out once alternative minimum taxable income passes $1 million for couples ($500,000 for single filers). Good timing comes from modeling each year how many options you can exercise before AMT applies, then exercising in batches across several years. Exercising early, while the spread is small, keeps the AMT exposure low and starts the one-year holding clock sooner, though it means paying the strike price in cash for shares that can still lose value. Any AMT you pay on an exercise generally becomes a credit against regular tax in later years, though recovering it can take several years and depends on your future income.

New York has no minimum tax of its own for individuals (it was repealed starting in 2014), so an ISO exercise creates no state AMT. When you sell, New York taxes the gain at its regular rates because the state has no separate capital gains rate, which puts most of the savings from a well-timed exercise on your federal return.

The tax savings come with real risk. Holding the shares for a year after exercise keeps a large part of your net worth in one company's stock, and if the price falls before you sell, you can owe AMT on a gain you never collect. Exercising also takes cash for the strike price and any tax due, and shares of a private company may have nowhere to sell. Before deciding how many options to exercise and when, we look at how concentrated your holdings already are.

For anyone planning to leave New York, ISOs carry one more consideration. New York treats the spread at exercise as compensation and taxes the share tied to the days you worked in New York between grant and vest, even after you move. If the stock later falls below its value on the exercise date, New York taxes only the gain you actually realize. Growth in the stock's value after the exercise date counts as investment income, which New York doesn't tax once you're a nonresident.

How New York taxes your retirement and your stock pay