The Department of Taxation and Finance has ruled that a lump sum settlement received by a nonresident individual from a nonqualified Supplemental Employee Retirement Plan (“SERP”) and Deferred Compensation Plan pursuant to an order of bankruptcy is exempt from New York State income tax. Advisory Opinion, TSB-A-13(5)I (N.Y.S. Dep’t of Taxation & Fin., Apr. 8, 2013). Beginning in 1996, Federal law prohibited states from imposing personal income tax on the retirement income of a nonresident or nondomiciliary individual. Here, the Department found that the payments in question would have constituted nontaxable retirement income had the nonresident’s former employer not commenced bankruptcy proceedings. The fact that the bankruptcy caused the nonresident to accept a lump sum payment in settlement of retirement income payments does not change that result.
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Lump sum payment in settlement of SERP and deferred compensation plan treated as nontaxable retirement income of nonresident individual
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