The 2019-2020 New York State Budget Bill, which was signed on April 12, 2019, contains some important personal income tax changes. This article will address these issues and other changes related to the decoupling of the federal Tax Cuts and Job Acts (TCJA) passed in late December 2017.
Extension of the ‘Millionaires Tax’
The top personal income tax rate in New York State is 8.82%. This rate is typically known as the ‘Millionaires Tax’ because it affects incomes exceeding $1,000,000 (for 2019, $1,077,550 for single taxpayers and $2,155,350 for married taxpayers). The 2019-20 Budget has extended this tax another 5 years making it effective through 2024.
Charitable Contribution Limitations
For tax years beginning on or after January 1, 2018, the New York Itemized deduction for charitable contributions is the amount allowed under IRC §170 (reduced by donations used to claim the farm donations and food pantries credit). However, the overall itemized deduction is limited to:
- 50% of the federal deduction for charitable contributions if NY adjusted gross income is over $1 million and no more than $10 million, or
- 25% of the federal deduction for charitable contributions if NY adjusted gross income is over $10 million.
The 25% limitation was due to expire but is now extended through 2024.
For example, if a taxpayer makes a $100,000 contribution in 2019 and their NY adjusted gross income is $1,200,000, they will be subject to the 50% limitation. This means the NYS itemized deduction is limited to $50,000.
For tax years beginning on or after January 1, 2019, NYS withholding is required from any gambling winnings from a wagering transaction within NYS if it is subject to federal withholding. In addition, New York source income of a nonresident now includes gambling winnings in excess of $5,000 from wagering transactions within NYS.
In addition to the new budget changes, it is important to note that NYS decoupled from some of the TCJA personal income tax provisions. The differences between federal and NYS itemized deductions are as follows:
- There is no $10,000 limit on real property taxes
- The medical expense limitation remains at 10% of federal AGI for NYS purposes
- The mortgage interest deductibility for NYS is not subject to the new TCJA limitations (See IRS Pub 936 for TCJA federal changes)
- Miscellaneous itemized deductions are allowed for NYS
In addition, to the differences in itemized deductions, NYS also decoupled from the TCJA alimony (agreements executed or modified after 12/31/18) and moving expense provisions. TCJA eliminated both the above line deductions for alimony payments and moving expenses. It also eliminated the inclusion in income for alimony received.
Changes Affecting 529 Plans
Lastly, TCJA allows tax-free distributions for K-12 tuition up to $10,000 per year from 529 plans. This federal benefit does not extend to NYS income tax. Under NYS law, K-12 tuition distributions are considered a nonqualified withdrawal. This means that taxpayers are required to recapture the tax deduction associated with the withdrawal and pay the tax on any gains on the money while in the 529 plan. NYS residents should consider the loss of these benefits at the state level before making a distribution.
As tax laws change, so do the complications between federal and state rules. This article has highlighted some new, NYS personal income tax changes and some recent differences between federal and NYS rules. It is important to note that because NYS decoupled from the TCJA, information regarding deductions may still be relevant for NYS but not federal. Providing all the information to your tax preparer is advisable.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.