New York State Individual Decoupling Provisions

Patricia Greenhouse, CPA (Feb, 2019)

The federal Tax Cuts and Jobs Act (TCJA) enacted in December 22, 2017 made numerous changes to the Internal Revenue Code.  New York State, which has rolling conformity to the federal tax provisions, is not marching in tune with TCJA and has decoupled from many of its provisions.  While we are still waiting for additional guidance, there are certain elements of the decoupling worth discussing going into the 2018 filing season.

The New York State personal income tax rates schedules for 2018 reflect a range of 4% - 8.82% based on your filing status and income levels.  While the higher federal rates takes a deeper cut from the household income, it is important to understand that tax savings may be available in New York if you understand the complicated world of decoupling.

Empire State Child Credit

Beginning in tax year 2018, the 2018 federal child tax credit will no longer be used as the basis to calculate the Empire State child credit.  The computation is based on both the eligibility and the credit amounts determined under the federal law in effect prior to 2018. Thus the credit amounts and income threshold that were in effect for tax year 2017 will be used to calculate the Empire State child credit.  

Standard/Itemized Deductions

New York State tax law previously required taxpayers who have claimed a standard deduction on their federal return to also claim the standard deduction on their state return.  This is no longer the case.  The 2018 federal standard deduction have increased, essentially doubling the 2017 amounts.  The chart below compares the federal and the New York State standard deductions.

Filing Status

2018 Federal Standard Deduction

2018 NYS Standard Deduction

Single/Married Filing Separate

$12,000

$8,000

Married Filing Joint/Qualifying Widow

$24,000

$16,050

Head of Household

$18,000

$11,200

 

Additionally New York State has decoupled for the federal tax laws changes to itemized deductions.  In general your New York itemized deductions are calculated as if the TCJA was not enacted.  The deductions which will differ are as follows:

  • There is no $10,000 limitation of real property tax for the New York State tax deduction.  State income taxes are not deductible (no change from previous treatment).
  • The medical expenses threshold remains at the 10% of federal adjusted gross income as opposed to 7.5% 2018 threshold for the federal deduction for medical expenses. 
  • There is no change in the deductibility of mortgage interest.
  • There is no change in the limitations on charitable contributions.
  • Pease limitation on overall itemized deductions remains in place which limit the itemized deductions based on filing status and income levels. 
  • Miscellaneous deduction are maintained.  This includes the unreimbursed business expenses and advisory fees. 

As you can see there will be a need for additional calculations to determine if it is beneficial to itemize on the New York State tax returns even if the larger standard deductions are used on the federal return. Depending on your individual facts and circumstances, the decision to take the standard deduction or to itemize on your New York State return will vary. 

Alimony

The TCJA no longer allows alimony payments to be deducted by the payer spouse.  The receipt of alimony is no longer included in federal adjusted gross income.  These changes are effective for any divorce or separation instrument executed after December 31, 2018. 

New York State has decoupled from this provision and retains the treatment effective before December 31, 2018.  A deduction is still allowed for the spouse paying the alimony and the recipient must include the alimony in their New York adjusted gross income. 

Moving Expenses

The TCJA has repealed the above the line deduction for moving expenses unless they are incurred by a member of the Armed Forces.  New York State has decoupled from this provision.

529 Plans

The TCJA allows 529 Plan account owners to withdraw Plan assets to pay for K-12 tuition up to $10,000 per year per beneficiary.  Additionally Plan account owners can roll over 529 Plan assets into ABLE Plan accounts subject to the annual contribution limit. 

Under New York State law, distributions for K-12 tuition expenses are considered nonqualified withdrawals and will require the recapture of any New York State tax benefits that have accrued on contributions. NY 529 account owners in other states should seek guidance from the state in which they pay taxes. Rollovers of 529 Plan assets into ABLE Plan accounts are not considered taxable events for New York State tax purposes.

Forms

New Form IT- 196, New York Resident, Non Resident and Part Year Resident Itemized Deductions, will be used to claim New York State itemized deductions.  Form IT-225, New York Modifications, has been revised to report New York State addition and subtraction modification to federal adjusted gross income other than those specifically listed on Form IT-201. 

For more information, please feel free to contact your Dermody, Burke & Brown tax advisor to discuss this and any other tax matter.

 

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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