The 5 Biggest Tax Breaks for New York Residents

New York is known for being a high-tax state because it charges state income tax. The top New York state tax bracket for 2023 is 10.9% -- but you won't have to pay that rate unless your income is over $25 million.

Empire State taxpayers still have some good options to reduce their state tax bill. Some New York tax breaks are even more generous than what the IRS allows at the federal level. Let's look at a few of the biggest tax deductions for New York state taxpayers.

1. Traditional IRA deduction

Putting money into a traditional IRA is a great way to save for retirement and get a tax break on your federal taxes. And your IRA tax deduction will carry through to your New York state tax return. That's because your New York tax return uses your federal adjusted gross income (AGI) as a starting point to calculate your state taxes.

So if you want to save money on New York state taxes, the first move you should make is to put money into a traditional IRA. But keep in mind that you also need to make sure you qualify for tax deductible IRA contributions based on your income and whether you or your spouse are covered by a retirement plan at work.

2. Health savings account (HSA) contributions

A health savings account (HSA) is one of the best tax-advantaged accounts you can get. These accounts let you save for healthcare costs (or future retirement expenses) with pre-tax money. You get a federal tax deduction for the money you put into an HSA, just like with a traditional IRA.

Keep in mind that you don't get a separate New York tax deduction for HSA contributions. Instead, the HSA tax break is reflected in your federal adjusted gross income (AGI), which you then use to calculate your New York taxable income.

3. 529 education savings plan deduction

If you're saving for a loved one's future college or other qualified education expenses, New York will give you a state tax deduction for your 529 plan. The New York 529 Direct Plan lets you deduct up to $5,000 of 529 plan contributions per year from your New York state taxable income -- or up to $10,000 for married couples filing jointly.

4. Standard deduction

The New York standard deduction might be one of the biggest numbers you can subtract from your New York taxable income. Unfortunately, the New York standard deduction is much lower than the federal version.

The 2023 federal standard deduction for married couples filing jointly is $27,700, but the New York standard deduction for these couples is only $16,050. A married couple could have New York state taxable income that is $11,650 higher than their federal taxable income -- unless they have enough other deductions to itemize on their New York state taxes.

5. New York itemized deductions

Even though the New York standard deduction is lower than the federal version, New York makes it easier to itemize. New Yorkers are allowed to take itemized deductions on state taxes even if they do not itemize on federal tax returns. This can be a big advantage!

Here are some common itemized deductions that New Yorkers can take -- and some of them are more generous than federal itemized deductions.

State and local taxes -- no $10,000 limit

Many federal taxpayers from high-tax states like New York are no longer able to itemize deductions on their federal returns because of the $10,000 SALT deduction cap that took effect in 2018.

On federal taxes, people are only allowed to deduct up to $10,000 per household of state and local taxes -- such as state income taxes and local property taxes. The $10,000 SALT deduction cap caused a big tax hit for many homeowners in states like New York because they no longer get a federal tax break for their real estate taxes and state income taxes.

Good news: New York doesn't have this $10,000 limit for state and local taxes on your state itemized deductions. Even if you took a hit from the SALT deduction cap on your federal taxes in the past few years, you can write off a much bigger amount on your New York tax return.

Home mortgage interest

You can deduct home mortgage interest and interest on home equity loans from your New York taxable income, based on the federal tax rules for tax year 2017 (before the passage of the Tax Cuts and Jobs Act).

Job expenses and miscellaneous deductions

If you pay for certain costs and expenses that are part of your job as an employee, like travel, gifts, and car expenses, New York state will let you claim these as itemized deductions. (The IRS no longer allows these deductions for federal taxes.)

Medical and dental expenses

This is one area where New York state's itemized deductions are less generous than the Feds. For your New York tax return, you can only deduct the amount of qualifying medical and dental expenses that is larger than 10% of your federal adjusted gross income (AGI). (The Feds let you deduct the portion above 7.5% of AGI.)

Gifts to charity

New York rules for itemized deductions of charitable contributions are the same as for your federal tax return. Give generously and get a tax break!

Bottom line

New York state income taxes can be complicated, but you might be surprised at how many state-level tax breaks are available for New York taxpayers. The best tax software can help New Yorkers get every tax break that they deserve -- federal and state.