The New York State Department of Taxation and Finance issued an advisory opinion explaining that a taxpayer’s payments from nonqualified deferred compensation plans to nonresident former employees, after termination of employment of the nonresidents, constitute retirement income and are therefore not subject to New York personal income tax, income tax withholding, or reporting. The Department’s determination was based on the federal Pension Source Law, codified at 4 U.S.C. § 114, which provides that no state may impose an income tax on any “retirement income” of an individual who is not a resident or domiciliary of such state. Specifically, the Department determined that the nonqualified plans at issue are described in IRC § 3121(v)(2)(C) and meet the other requirements in 4 U.S.C. § 114(b)(1)(I), thereby qualifying as “retirement income” under the federal law. However, the Department also determined that payments made prior to termination of employment do not constitute retirement income for purposes of the Pension Source Law and therefore any income, gain, loss, or deduction derived from New York sources with respect to the distributions to the nonresident individuals are subject to New York personal income tax. Because these payments are considered wages for federal income tax withholding purposes, the Department concluded that the payments will also be considered wages for New York State withholding tax purposes. Therefore, the taxpayer is required to deduct and withhold New York State personal income tax from these payments, based on a reasonable estimate of the tax due, and to file a New York State withholding tax return and pay to the state the taxes required to be deducted and withheld.