The Tax Cuts and Jobs Act of 2017 (TCJA) made significant changes to personal income taxation. In response to the federal tax law changes made under the TCJA, New York State has decoupled from certain personal income tax changes. This article will provide CPAs with an overview of how some of these critical changes will impact the upcoming tax compliance season.
Taxpayers may choose to itemize their deductions for New York purposes for tax years 2018 and after, even if they do not itemize on their federal income tax return. In addition, New York allows several deductions that are no longer available for federal purposes, such as the following:
- State and local real estate taxes paid, including amounts over the $10,000 federal limit
- Casualty and theft losses, including those incurred outside a federally declared disaster area
- Unreimbursed employee business expenses
- Certain miscellaneous deductions, such as tax preparation fees, investment expenses, and safe deposit box fees.
To this end, New York State has created Form IT-196 for New York residents, nonresidents, and part-year residents to report their allowable itemized deductions.
Medical and Dental Expenses
For federal purposes, medical and dental expenses can be deducted only if the expenses are more than 7.5% of federal adjusted gross income (AGI). For New York purposes, medical and dental expenses can be deducted if the expenses are greater than 10% of federal AGI.
Home mortgage and home equity interest deductions, for federal purposes, have changed for the 2018 tax year; however, New York will follow the federal 2017 rules for such deductions.
Alimony or Separate Maintenance Payments
When calculating their New York AGI, taxpayers who have alimony or separate maintenance payments made under an alimony or separation agreement that was executed or modified after December 31, 2018, are required to—
- subtract from federal AGI any applicable alimony or separate maintenance payments made in the tax year, and
- add to federal AGI any applicable alimony or separate maintenance payments received in the tax year.
Moving Expenses and Reimbursement
New York will continue to allow taxpayers to exclude from their New York AGI any qualified moving expenses and reimbursement for moving expenses that are not deductible or excludable under the TCJA. When calculating New York AGI, taxpayers should subtract from federal AGI—
- any applicable qualified moving expenses reimbursement received in the tax year, and
- any qualified moving expenses paid during the tax year.
Section 529 College Savings Account Plans
Withdrawals from a qualified tuition program (QTP) account established under section 529 of the Internal Revenue Code (IRC) for kindergarten through 12th grade school tuition, which now qualify under the TCJA, are not qualified withdrawals under the New York 529 college savings account program. A withdrawal is nonqualified if the withdrawal is actually disbursed in cash or in-kind from a New York State 529 college savings account and the funds are not used for the higher education of the designated beneficiary. Higher education generally means public or private, nonprofit, or proprietary postsecondary educational institutions in or outside New York. Therefore, any withdrawal from a New York 529 college savings account used to pay tuition in connection with enrollment or attendance at elementary or secondary public, private, or religious schools is a nonqualified withdrawal.
Change to the Empire State Child Tax Credit
Taxpayers may no longer use the amount of the current tax year’s federal child tax credit or additional child tax credit to compute the Empire State Child Tax Credit for New York. The Empire State Child Tax Credit is based on the 2017 federal credit amounts and income.
As the tax-filing season begins, it is important for CPAs to be aware of the changes to New York’s tax treatment of certain items, made in response to the TCJA’s personal income tax changes, and how they may affect their clients.