High-Earning New Yorker? You’re Probably Overpaying State Income Tax

If you live in New York and have a decent income, you know that New York taxes are expensive.

Really expensive.

According to the Tax Foundation, New York has the highest per-capita state and local tax collection of any state, at $12,685, more than 78% higher than the national average. And that’s just the average New York tax burden.

For high earners, it’s far higher, especially when you stack federal, state, and, if you live in the five boroughs, New York City (NYC) taxes.

As Jeffrey Judge, CFP®, AEP®, ChFC®, CLU®, of Chesapeake Financial Planners, says, “The biggest misconception I hear from high earners in New York is that their federal strategy handles everything. It doesn’t. New York State and New York City run their own tax systems, with their own rates, deductions, and rules about what counts. A client making $300K in Manhattan faces a combined marginal rate that can push past 50% when you stack federal, state, and city. Most people don’t realize they’re living in one of the most expensive tax jurisdictions in the country until it’s already cost them.”

For many high-earning New Yorkers, this can feel like an unfortunate fact of life. The cost of doing business, so to speak. Either accept it or leave the state.

But as multiple financial planners, tax professionals, and advisors working with New York clients pointed out, high tax rates are only part of the problem. A part you can’t control, assuming you remain a NY resident.

But there is another part that is within your control.

It’s educating yourself about which decisions crucially impact your taxes, and making the right choices, at the right time, as we’ll see below. And we aren’t talking about some complex, aggressive tax strategies and questionable loopholes, or moving to a no-tax state like Florida or Texas.

In a system like this, treating taxes as something you file once a year and ignore for another 12 months gets very expensive.

What you’ll need to focus on is simple.

• Timing.
• Asset location.
• Structure.
• Long-term planning.

Understanding how these impact your taxes and what to do about them will do far more to reduce your tax liability than chasing Internet “tax hacks.”

Why Most High-Earning New Yorkers Leave Money on the Table at Tax Time

It’s understandable.

Federal taxes are notoriously complicated. New York’s tax code just adds insult to injury.

As a result, many people just give up on anything beyond the most basic things, like retirement contributions and standard deductions.

To do more, it feels like you’re facing a mile-high cliff, including, e.g.:

• Federal taxes and all their evolving complexities.
• New York State taxes.
• NYC taxes, for NYC residents.
• State and Local Tax (SALT) deduction rules.
• Equity compensation.
• Multi-state work arrangements.
• Real estate considerations.
• Retirement account decisions.

One example of how federal tax changes impact state tax planning is the recent, temporary increase of the SALT deduction limit from $10k to $40k. This changes the math for high-tax-state residents, making some planning strategies moot, at least for a few years. 

One example is an entity-level planning opportunity, the Pass-Through Entity  Tax (PTET) election that certain business owners have taken advantage of before the recent SALT deduction limit increase.

This doesn’t mean you don’t need tax planning.

Quite the opposite.

It means that your planning has to stay up to date with changes at the local, state, and federal levels, and how they affect each other.

Dr. Steven Crane, Founder of Financial Legacy Builders, says, “Most New York taxpayers, especially higher earners, get tripped up because they think the problem is just ‘high taxes,’ when in reality the real issue is how aggressive and complex the system is. It’s not just about how much you make; it’s when the income hits, how it’s structured, and whether New York still considers you a resident, and that last one burns people all the time.”

You may think you’re already doing everything right because you’re maxing out your 401(k) and working with a tax-filing software package or with a Certified Public Accountant (CPA) during tax-filing season.

But tax filing and tax planning are not the same thing.

As Hazel Secco, CFP®, CDFA®, of Align Financial Solutions, points out, “Tax filing software records what happened. It doesn’t tell you what to do differently in the years ahead.”

The Few Decisions that Do the Heaviest Lifting

The biggest insight provided by the financial experts was that most New York tax outcomes are driven by just a few decisions.

• Proper timing of when income gets recognized.
• Where you hold your assets and investments.
• How you structure your compensation.
• Your residency now and in the long term.

Dr. Crane summarizes it like this, “If you’re earning in the $150K to $500K range, the biggest levers aren’t deductions; they’re timing, structure, and location. Spacing out income, being intentional about stock sales or bonuses, and understanding where you actually live in the eyes of the state can make a far bigger difference than most tax ‘tips’ people chase.”

Table 1 summarizes several areas of tax planning that are most important to focus on.

Table 1. The areas of tax planning that may make the biggest difference, and what people may miss about them.

This is the silver lining in the NY tax cloud. You don’t have to optimize every little thing. Just a few, impactful things.

Timing of Income Matters More Than Most People Realize

Timing was consistently identified by multiple experts as a critical and frequently undervalued decision. This includes:

• Bonuses.
• Deferred compensation.
• Capital gains.
• Roth conversions.
• Large charitable contributions.

Richard Siminou, Founder of Siminou Wealth Management, shares, “I had a client come to me after selling a concentrated stock position in a taxable account, a significant gain they didn’t plan for, and the combined federal, New York State, and NYC tax bill was genuinely shocking to them. That conversation happens more than people would expect.

The most common misconception I see among higher earners in the New York area is around capital gains. Many clients don’t realize that taxes on investment gains depend entirely on where those assets are held. In a regular brokerage account, capital gains are taxable the year they’re realized, and in New York, that means federal, state, and potentially NYC taxes all hitting at once. In a traditional IRA, those gains are deferred, which is valuable, but the trade-off is that withdrawals are taxed as ordinary income later. In a Roth IRA, qualified withdrawals are entirely tax-free.”

However, it’s important to note that the drawback of having eventual withdrawals from tax-deferred accounts taxed as regular income is limited to the federal portion of taxes, since NY and NYC already tax capital gains the same as regular wage income.

Secco agrees, “Every dollar you defer reduces your New York taxable income dollar for dollar, which matters because New York taxes ordinary income aggressively and does not give you the capital gains preference the federal code does. If you’re in a high-earning year and you have discretion over when income hits, the timing of that decision can be worth tens of thousands of dollars.”

Judge adds, “Restricted stock, deferred comp, and bonuses all have timing flexibility that most employees never use.”

That doesn’t mean you can control the timing of every bit of your income. It’s just that when you can control even a fraction of it, it’s worth considering carefully. 

For example, you may be able to:

• Delay a bonus.
• Defer some compensation.
• Time stock sales for the best realized gain or loss.
• Bunch charitable deductions into one year (here, the recent change in charitable giving deduction affects state taxes, too). 
• Manage taxable income around deduction thresholds.

Alex Caswell, CFP®, CFA, EA, Founder of Wealth Script Advisors, emphasizes the importance of income thresholds under the updated SALT rules, “The new tax bill that passed has significantly increased the SALT deduction. However, that deduction phases out starting at $500,000 of adjusted gross income (AGI). So, it’s imperative to do everything in your power to keep your gross income below $500,000.”

That doesn’t mean you have to obsess over every specific number, but it reinforces the broader point that, in NY, income structure and timing can have a huge impact on your tax liability. 

Asset Location: Why Where You Hold Investments Matters as Much as What You Hold

Where you hold your investments matters.

A lot.

For many New Yorkers, it can matter more than investment selection.

Many people focus, understandably, on maximizing returns, but fail to consider the tax implications of where they hold any given asset, and how those implications play out over time.

As Siminou says, “Asset location, meaning which assets sit in taxable vs. tax-deferred vs. tax-free accounts, can meaningfully reduce your annual tax drag without changing your investment strategy at all.”

This matters especially in high-tax jurisdictions like NY, and even more so NYC, because those state and local taxes, with no preferential tax rates for long-term capital gains, amplify the impact of taxable investment income.

That’s why maximizing your contributions to 401(k) plans, Health Savings Accounts (HSAs), if you have an HSA-qualified high-deductible health plan, IRAs, and 529 plans, is so important for New Yorkers.

Matthew McKay, CFP®, of Briaud Financial Advisors, shared guidance from advisor Natalie Pine, highlighting 529 plans, an often-overlooked benefit for New Yorkers: “Contributions to a New York 529 plan are deductible up to $5,000 per year by an individual, and up to $10,000 per year by a married couple filing jointly. Only contributions made by the account owner, or if filing jointly, by the account owner’s spouse, are deductible. Now, 529s can be used for broader certifications and a wide variety of education-related expenses, plus eventually even for Roth IRA contributions, so it’s definitely worth exploring even without kids.”

Residency Rules, Entity Structure, and the NY Tax Mistakes That Cost Six Figures

This was arguably the area of greatest agreement among the experts. The biggest tax-related mistakes weren’t small deduction errors. They were the result of structural misunderstandings.

These include:

• Residency mistakes.
• Multi-state work misunderstandings.
• NYC versus non-NYC assumptions.
• Entity structure issues.

As alluded to above, where you live in NY makes a big difference to your taxes. That’s because NYC residents face an additional layer of local taxes, on top of federal and state taxes.

And if you move into or out of NY, and especially NYC, when you do so matters.

Part-year residency rules affect how much of your taxable income is subject to NY’s state taxes and NYC’s local taxes. This is where proper documentation becomes critical.

Joon Um, CFP®, EA, CLU®, ChFC®, of Secure Tax & Accounting, said one of the biggest misconceptions is just how hard it is to leave New York for tax purposes, “From our experience with NY taxes, the biggest misconception is that leaving NY is easy. It’s not. NY is very aggressive with residency rules, and we’ve seen people still get taxed there even after they think they’ve moved. A common mistake is thinking that changing your address is enough. It’s not; you really have to shift where you live and spend your time.

“For folks in the $150K–$500K range, the biggest factor is usually residency and where the income is tied. If you work remotely or are still connected to a NY-based job, you can still get pulled into NY tax.”

Judge reinforced this point with a real-world example: “The costliest mistake I’ve seen isn’t aggressive tax planning. It’s people who relocate out of New York without following the residency rules correctly. New York is aggressive about auditing high earners who claim to have moved. You need to spend fewer than 183 days in-state, and you need to demonstrate it with documentation: travel records, financial activity, and cell phone location data.

“I had a client who sold a business and moved to Florida, genuinely believing he was no longer a New York resident, and spent the next two years in an audit that said otherwise. The tax bill was six figures. The advisory fee to prevent it would have been a small fraction of that.”

New York’s aggressive tactics of auditing high earners who claim to have moved are well known and are the reason many experts emphasize that residency planning isn’t something to approach casually.

How Retirement Location and Withdrawal Strategy Affect Your New York Tax Bill for Decades

Perhaps the most surprising theme from multiple experts is just how often they see clients misunderstand how NY treats retirement income.

People often assume retirement will solve their state tax problem.

Not necessarily.

Judge explains, “Distributions from New York state and local government pensions are fully exempt from state tax. Federal pensions get similar treatment. But IRA and 401(k) distributions are fully taxable.”

That distinction can dramatically alter retirement withdrawal planning.

Secco expands, “New York’s treatment of retirement account distributions is one of the most misunderstood parts of the tax picture for people planning to retire here. New York does not fully exempt retirement income the way many other states do. There’s a modest exclusion, but the bulk of your 401(k) and IRA distributions are fully taxable at state rates. One way to mitigate the significant tax burden in retirement is to systematically convert pre-tax dollars into tax-free dollars before those distributions become your primary income source. Ideally, before Required Minimum Distributions (RMDs) force the issue and the window closes.”

If you plan to retire in NY and have retirement income mostly from withdrawals from IRAs and 401(k) plans, that will significantly increase your taxes in retirement.

Pine emphasizes how future location matters when deciding between pre-tax and Roth contributions, “Retirement deferrals pre-tax work great if you work in NYC and will retire in, say, Texas. You not only save current federal taxes but also state and local taxes. However, if you will retire in NYC, it might be worth contributing to a Roth 401(k) or a mixture of pre-tax and Roth so you don’t hit retirement thinking you have saved $5 million in your 401k only to realize that with all the taxes, you will only net around $3 million and can’t sustain your lifestyle.”

Secco cautions about Roth conversions if you think that you may not retire in NY, “Think carefully before doing a large Roth conversion while you’re a New York City resident. You’re stacking city, state, and federal tax on every dollar you convert. If there’s any chance you’ll live somewhere else before retirement, that math changes significantly.”

This is exactly the sort of situation where tax planning must go beyond filing and even annual planning. It’s where multi-decade flexibility needs to be built in.

This includes considerations such as:

• Expected retirement location.
• Future income expectations.
• Pension structure (if any).
• RMDs.
• Whether you expect your future federal, state, and local tax rates to rise or fall.

New York Tax Strategies That Don’t Work — and Can Trigger an Audit

If you search the Internet for ways to evade the high NY and NYC taxes, you may come across simplistic, or even illegal, “tax tips” that several experts specifically called out. Things like:

• Changing your mailing address.
• Opening an out-of-state Limited Liability Company (LLC).
• Claiming residency elsewhere without changing your actual location.

Dr. Crane puts it bluntly, “I’ve seen clients assume they left the state, change their address, move their life, and still get hit with a massive tax bill because they didn’t actually break residency under New York’s rules. A lot of people trying to DIY their taxes at this level are playing a game they don’t fully understand. Once you have multiple income streams, equity comp, or any question about residency, you’re in dangerous territory. New York doesn’t forgive mistakes; it audits them. And the cost of being wrong is usually a lot higher than people expect.”

This isn’t to say that you can’t or shouldn’t take advantage of legitimate tax avoidance and mitigation strategies, which the IRS defines as “[A]ction[s] taken to lessen tax liability and maximize after-tax income” as opposed to tax evasion, “The failure to pay or a deliberate underpayment of taxes.”

The first is legal. The latter is not.

When Professional Help Is Most Likely to Be Valuable

Experts agreed that, even in NY, not everyone needs highly sophisticated tax planning.

But if your situation gets complicated, things change.

Secco gives some examples, “The moment you have more than one income source that requires coordination, DIY planning starts costing you money. For most New Yorkers earning $150K to $500K, that usually means a complex benefits package. Add a pension, a real estate transaction, or a job change with deferred comp, and now you have multiple moving pieces that affect each other. That’s where the real money gets left on the table.”

Judge gives a similar threshold guideline, “If you have W-2 income above $200K plus any combination of equity compensation, rental property, self-employment income, or a business interest, you’re past the point where software handles it well. The interactions between those income types create planning opportunities that only show up if someone’s looking for them.”

Siminou suggests that a one-time review can be helpful at a far lower threshold. “At the $150K income level and above in New York, the interaction between federal, state, and city taxes is complex enough that a one-time review with a professional is almost always worth it.”

Um adds another situation where getting help can pay off, “We see a lot of multi-state issues, especially with people who move but keep the same employer or income sources. Once multi-state comes into play or you’re trying to break NY residency, it’s usually worth getting help, since that’s where mistakes can get expensive.”

Additional New York Tax Breaks Many High Earners Overlook

While chasing every deduction isn’t necessarily worthwhile for most, Pine lists several things that can help many taxpayers in NY.

• “Since New York State doesn’t tax social security and retirement income from the federal government, including military retirement plans, and New York State and local government, having zero taxable income in retirement can be inefficient. 
• “For families with special needs, there is an exclusion of up to $20,000 of disability income from New York tax. For individuals who take both the pension and disability exclusion, the total of the two exclusions cannot exceed $20,000. 
• “New York State allows taxpayers to itemize certain miscellaneous deductions that are no longer allowed on federal returns, like advisor fees, so an advisor may not be as expensive as you think.”

Judge adds two more.

• “If income phaseouts prevent contributions to a Roth account, consider using a backdoor Roth. 
• “If you’re charitably inclined, a Donor-Advised Fund (DAF) can bundle multiple years of giving into one deductible contribution and keep your itemized deductions above the standard threshold.”

The Bottom Line: NY Taxes Are High, But Four Decisions Determine How Much You Actually Pay

Many New Yorkers, even high-earning ones, assume they just have to live with their state and local tax bill, possibly making the most basic moves like contributing to a retirement plan.

That’s understandable given how complicated and layered New York’s tax system is, especially coming on top of the complicated federal tax code, and most especially for NYC residents who also have to deal with local taxes.

But as multiple experts noted, people who want to optimize their state and local taxes in NY don’t need to chase every little deduction. Instead, they should focus on the biggest-impact decisions.

• Carefully timing income when you can.
• Being intentional and informed when allocating your investments between account types.
• Understanding and following residency rules.
• Planning years and decades ahead, not just reacting to filing deadlines, or at most planning for the current tax year.

Especially in complicated, high-tax systems, long-term planning and careful optimization are crucial, and the highest-cost mistakes may not become obvious until years or decades later, when it’s far too late to do anything about them.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.