Updated October 7, 2026. Quick answer: Generally no. A Department of Taxation and Finance advisory opinion (TSB-A-17(1)I) concluded that a lump sum TSP distribution from contributions made while a federal employee “will be exempt from New York State income tax” if it is included in federal adjusted gross income. The Form IT-201 instructions list “Pensions of New York State and local governments and the federal government” as line 26.
New York TSP withdrawal tax treatment at a glance
| Item | What the documents say |
|---|---|
| TSP withdrawals | Exempt, on the Department’s advisory opinion: a lump sum TSP distribution from federal employee and employer contributions qualifies for the pension subtraction |
| FERS annuity | The advisory opinion’s petitioner was a FERS member; the opinion treats the TSP distribution as a pension to a federal employee under the same statute as the annuity |
| Rate or limit printed | No dollar cap stated for the line 26 federal pension subtraction |
| Where it is reported | Form IT-201, line 26 (subtraction); Tax Law 612(c)(3)(ii) |
| Source | NY Department of Taxation and Finance, Office of Counsel; NY Department of Taxation and Finance |
What the New York documents say
The opinion answers a petition that asked whether a lump sum distribution from a Federal Thrift Savings Plan account will be exempt from New York State income tax. The Department concluded that a distribution attributable to the petitioner’s and his employer’s contributions while he was a federal employee “will be exempt from New York State income tax” if the amounts are included in federal adjusted gross income.
The statute behind it is Tax Law section 612(c)(3)(ii), which the opinion says “qualifies for the subtraction modification under Tax Law” for federal pensions to the extent includible in federal income. The opinion describes the TSP as established by 5 USC section 8437. On the return, the IT-201 instructions put the subtraction at “Pensions of New York State and local governments and the federal government”.
A worked example at $30,000 of withdrawals
An illustration, not a return: a New York resident who was a federal employee takes $30,000 from the TSP in 2026, all attributable to employee and employer contributions made during federal service and included in federal adjusted gross income. On the opinion’s reasoning the amount is subtracted, so $0 of it is taxed by New York State. Local taxes and amounts that came from other sources are outside this page.
If you moved to New York or left it
The rules above are New York’s own, for a resident. Federal law limits what a state you have left may do: “No State may impose an income tax on any retirement income” of someone who is not a resident or domiciliary of that state, as 4 U.S.C. 114(a) puts it. The statute defines retirement income by reference to plans described in the Internal Revenue Code; this page does not decide whether a particular TSP payment meets that definition. If you moved during the year, check each state’s page and return. See CMG’s TSP withdrawal options and FERS, TSP and Social Security sequencing pages for the federal side.
What changes in 2026
The documents read for New York announce no change for 2026 that is specific to TSP withdrawals. The instructions read are for tax year 2025, the newest archived; check the state agency for the 2026 forms when they are published.
What the documents do not say
- The opinion is a response to one petitioner’s facts (a lump sum, contributions made while a federal employee) and is not a rule; the 2025 IT-201 instructions do not name the TSP. Earnings versus contributions, rollovers from an IRA, and periodic withdrawals are not addressed in the lines quoted.
Common mistakes
- Treating the opinion as covering money rolled into the TSP from an IRA or another source; it addresses contributions made while a federal employee.
- Forgetting that the subtraction only applies to amounts included in federal adjusted gross income.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the withdrawal.
Related: TSP withdrawal options, state tax on TSP withdrawals, New York retirement taxes, how New York taxes pensions, and how New York taxes 401(k) and IRA withdrawals.
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Answer againSources
- TSB-A-17(1)I Advisory Opinion Petition No. I160302A: https://www.tax.ny.gov/pdf/advisory_opinions/income/a17_1i.pdf
- 2025 Form IT-201-I, Instructions for Form IT-201: https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf
- 4 U.S.C. 114, Limitation on State income taxation of certain pension income (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title4/html/USCODE-2023-title4-chap4-sec114.htm
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.