Magazine article The CPA Journal

New Law Eliminates State Source Tax on Retirement Benefits

Magazine article The CPA Journal

New Law Eliminates State Source Tax on Retirement Benefits

Article excerpt

Taxing pension benefits of those who live in another state is anti-senior and frankly, anti-American. Your freedom to travel and retire to any part of this great country should not be lim-- ited by the tax policies of your former state of residence. Representative Karen L. Thurman (D-Florida).

On January 10, 1996, President Clinton signed into law a proposal invalidating a state's right to tax most retirement benefits of nonresident retirees. Under the new law, in most cases, it will be beyond the powers of the source state (i.e., where the retirement or pension benefits were earned) to reach over state borders and tax the pension or retirement income.

Previously, 13 states had laws allowing them to tax pension plan distributions and other retirement benefits of individuals who earned income in their state, regardless of whether or not they were residents of the state. Among these states was New York where, prior to the new law, if an employer contributed to a pension plan on behalf of an employee who worked in New York and subsequently moved to Florida, then the employee would generally continue to pay New York taxes on the pension income.

The new legislation is virtually all encompassing. …

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