20 CRR-NY 112.3NY-CRR
STATE COMPILATION OF CODES, RULES AND REGULATIONS OF THE STATE OF NEW YORK
TITLE 20. DEPARTMENT OF TAXATION AND FINANCE
CHAPTER II. INCOME TAXES AND ESTATE TAXES
SUBCHAPTER A. NEW YORK STATE PERSONAL INCOME TAX UNDER ARTICLE 22 OF THE TAX LAW
ARTICLE 2. RESIDENTS
PART 112. NEW YORK ADJUSTED GROSS INCOME OF A RESIDENT INDIVIDUAL
20 CRR-NY 112.3
20 CRR-NY 112.3
112.3 Modifications reducing Federal adjusted gross income.
Tax Law, §§ 612(c), 617-a
The following items are to be subtracted from Federal adjusted gross income in determining the New York adjusted gross income of a resident individual:
(a)
(1) General. Interest income on obligations of the United States and its possessions, to the extent includible in gross income for Federal income tax purposes, including certain amounts received as dividends from a regulated investment company (as defined in section 851 of the Internal Revenue Code). (See section 612[c][1] of the Tax Law.)
(2) For purposes of paragraph (1) of this subdivision, certain amounts received as dividends from a regulated investment company are that portion of a distribution received by a shareholder that are derived from obligations of the United States and its possessions provided, the regulated investment company:
(i) has at least 50 percent of the value of its total assets invested in obligations of the United States and its possessions at the close of each quarter of its taxable year; and
(ii) issues a written notice to the shareholders of the regulated investment company within 60 days after the close of the company's taxable year indicating the amount of dividends that qualify for the New York subtraction modification referred to in this subdivision.
(a) Where 100 percent of the income of the regulated investment company is derived from interest on obligations of the United States and its possessions, the written notice should indicate that 100 percent of the income received by the shareholders may be subtracted.
(b) Where less than 100 percent of the income of the regulated investment company is derived from interest on obligations of the United States and its possessions, the written notice should indicate that portion of the shareholder's distribution attributable to such interest that may be subtracted, determined by multiplying the shareholder's distribution by a fraction, the numerator of which is the regulated investment company's interest income on Federal obligations for the taxable year less expenses attributable to such interest income for such year, and the denominator of which is the regulated investment company's taxable income for such year determined in accordance with section 852(b)(2) of the Internal Revenue Code, but without regard to subparagraph (D) of such paragraph (2).
(3) Examples. The following examples illustrate the provisions of this subdivision:
Example 1:
Interest income on United States savings bonds is subject to Federal income tax but not to New York State personal income tax. Therefore, the amount of such interest income is subtracted from Federal adjusted gross income to the extent it is includible in gross income for Federal income tax purposes in determining New York adjusted gross income.
Example 2:
Assume a regulated investment company meets the 50 percent requirement of section 612(c)(1) of the Tax Law and such regulated investment company's taxable income is $80,000, which included interest income of $70,000 from obligations of the United States and $10,000 of expenses directly related to the interest income from such obligations of the United States.
Also assume that the regulated investment company distributed the entire $80,000 to its shareholders. Therefore, the percentage of this distribution that may qualify for the New York subtraction modification is 75 percent, determined as follows:
Step 1:
Determine the net interest income from Federal obligations ($60,000) by subtracting the expenses directly related to the interest income on such obligations ($10,000) from the interest income from such Federal obligations ($70,000).
| $70,000 interest income from Federal obligations | − | $10,000 expenses directly related to interest income on Federal obligations | = | $60,000 net interest income from Federal obligations |
Step 2:
Determine the percentage of regulated investment company's dividends that qualify for the New York subtraction modification (75 percent) by dividing the net interest income from Federal obligations ($60,000) as determined in Step 1 by the regulated investment company's taxable income ($80,000).
| $60,000 net interest income from Federal obligations | / | $80,000 regulated investment company's taxable income | = | 75% percentage of regulated investment company's dividends that qualify for the New York subtraction modification |
Assuming shareholder A received dividend distributions of $2,000 from the above regulated investment company, such investment company must issue a written notice to shareholder A, indicating that $1,500 of the $2,000 distribution qualifies for the New York subtraction modification, determined as follows:
| $2,000 A's dividend distribution | × | 75 percent percentage of investment company's dividends that qualify for the New York State subtraction modification | = | $1,500 A's portion of dividend distribution which qualifies for the New York State subtraction modification |
(b)
(1) Interest or dividend income on obligations or securities of any authority, commission or instrumentality of the United States, to the extent includible in gross income for Federal income tax purposes but exempt from state income taxes under the laws of the United States. (See section 612[c][2] of the Tax Law.)
(2) The provisions of paragraph (a)(2) of this section relating to amounts received as dividends from a regulated investment company shall apply for purposes of paragraph (1) of this subdivision.
Example:
Interest income on obligations of the Home Owners' Loan Corporation is subtracted from Federal adjusted gross income to the extent it is includible in gross income for Federal income tax purposes as a modification item in determining the New York adjusted gross income of a resident individual, since an act of Congress exempts this interest income from state income taxation but not from Federal income taxation.
(c)
(1) Pensions and other retirement benefits paid to public officers and public employees of New York State, its political subdivisions or agencies or the Federal government (Tax Law, § 612[c][3]).
(i) Retirement benefits provided for in clauses (a) and (b) of this subparagraph which are included in Federal adjusted gross income, relate to services performed as public officers or public employees and all or a portion of which are actually contributed to (rather than merely being deemed contributed to) by New York State, its political subdivisions or agencies or the Federal government, shall be subtracted in computing New York adjusted gross income:
(a) pensions and other retirement benefits (including, but not limited to, annuities, interest and lump sum payments) paid to a public officer or public employee or the beneficiary of a deceased public officer or deceased public employee of New York State, its political subdivisions or agencies;
(b) pensions and other retirement benefits (including but not limited to annuities, interest and lump sum payments) paid to a public officer or public employee or the beneficiary of a deceased public officer or deceased public employee of the United States, its territories or possessions, or political subdivisions of such territories or possessions, the District of Columbia, or any agency or instrumentality of any one of the foregoing.
(ii) This paragraph shall also apply to distributions paid in a taxable year prior to retirement to public officers and public employees which represent a return of contributions to the applicable public retirement program.
(iii) The provisions of this paragraph can be illustrated by the following examples:
Example 1:
A retired employee of New York State receives a pension which is taxed under the Internal Revenue Code as annuity income. Since the pension of a retired New York State employee is exempt from New York State personal income tax under New York State law, the amount included in Federal adjusted gross income on account of this pension is subtracted in determining such employee's New York adjusted gross income.
Example 2:
A New York State employee leaves state service prior to vesting in the New York State Employee's Retirement System. Contributions made by or on behalf of such employee, as well as all investment earnings accumulated thereon, are to be subtracted in determining such employee's New York adjusted gross income.
Example 3:
A retired Federal employee receives a pension which is taxed under the Internal Revenue Code as annuity income. Since the pension of a retired Federal employee is exempt from New York State personal income tax under New York State law, the amount included in Federal adjusted gross income on account of this pension is subtracted in determining such employee's New York adjusted gross income.
Example 4:
A retired employee of the State University of New York who elected to participate in the applicable Optional Retirement Program authorized under the Education Law receives a pension, based upon such employee's public service, which is taxed under the Internal Revenue Code as annuity income. Since such pension income is exempt from New York State personal income tax under New York State law because such pension was actually contributed to by New York State, the amount included in Federal adjusted gross income on account of this pension is subtracted in determining such employee's New York adjusted gross income.
Example 5:
A retired employee of a public benefit corporation receives a pension from a fund which was not contributed to by New York State, any of its political subdivisions or agencies or the Federal government and which is taxed under the Internal Revenue Code as annuity income. Since such pension income is not exempt from New York State personal income tax under New York State law because such pension was not actually contributed to by New York State, any of its political subdivisions or agencies or the Federal government, the amount included in Federal adjusted gross income on account of this pension is not subtracted in determining such employee's New York adjusted gross income and is therefore included in such employee's New York adjusted gross income.
(2) Other pension and annuity income (Tax Law, § 612[c] [3-a]).
(i) Pension and annuity income not subject to the modification referred to in paragraph (1) of this subdivision and not in excess of $20,000, received by an individual may be subtracted in determining New York adjusted gross income providing the following conditions are met:
(a) the pension and annuity income must be included in Federal adjusted gross income;
(b) the pension and annuity income must be received in periodic payments (except where otherwise provided in this paragraph);
(c) the pension and annuity income must be attributable to personal services performed by such individual, prior to such individual's retirement from employment, which arises from either an employer-employee relationship or from contributions to a retirement plan which are tax deductible under the Internal Revenue Code (e.g., individual retirement account [IRA] or self-employed retirement [Keogh]); and
(d) such individual receiving the pension and annuity income must be 59 1/2 years of age or over.
(ii) Distributions from an individual retirement account (IRA) or a self-employed retirement plan (Keogh) will qualify for the pension and annuity income modification whether such distributions are periodic payments or a lump sum distribution. However, the modification referred to in this paragraph will not be allowed for a lump sum distribution from a self- employed retirement plan (Keogh) if the Federal special 5-year averaging method of determining the Federal income tax due on such lump sum distributions is elected (see section 603 of the Tax Law and Part 103 of this Title for provisions relating to determining the New York State separate tax on the ordinary income portion of a lump sum distribution where the special 5-year averaging method has been elected for Federal income tax purposes).
(iii) Where a husband and wife each receives a pension or annuity and each qualifies for the pension and annuity income modification as described in subparagraph (i) of this paragraph, then each spouse shall compute his or her own pension and annuity income modification as if separate Federal income tax returns were filed. The combined pension and annuity income modification may not exceed $20,000 for each spouse. Each spouse may not claim any unused portion of the other spouse's modification.
(iv)
(a) Where a beneficiary receives a payment which qualifies as a pension or annuity created by the decedent, such payment will come within the definition and meaning of “pension and annuity” as defined in this paragraph. The beneficiary will be entitled to the same pension and annuity income modification that the decedent would have been entitled to, had such decedent continued to live, regardless of the age of the beneficiary.
(b) If the deceased has more than one beneficiary, the $20,000 pension and annuity income modification must be allocated among the beneficiaries in the same ratio as the distribution is shared so that the total pension and annuity income modification of all beneficiaries does not exceed $20,000 in the aggregate.
(v) Where an individual claims a disability income modification under paragraph (3) of this subdivision, the combined amount of the disability income modification and the pension and annuity income modification cannot exceed $20,000.
(vi) Pension and annuity income not included in New York State adjusted gross income (e.g., railroad retirement benefits) may not be included in the computation of the pension and annuity income modification.
The following examples illustrate the application of the provisions of this paragraph.
Example 1:
A resident husband and wife included pension and annuity income of $25,000 in their Federal adjusted gross income on their 1992 joint Federal income tax return. The husband retired on January 1, 1992 at the age of 61 and received pension and annuity income in periodic payments totaling $15,000 for the full year. The wife retired on March 1, 1992 at which time she was 59 years of age. The wife received pension and annuity income in periodic payments totaling $10,000 for the 10-month period from March 1, 1992 to December 31, 1992. The wife became 59½ years of age on June 1, 1992. The pension and annuity income received by each spouse was attributable to personal services performed by each as employees prior to their retirement. They filed a joint 1992 New York State resident personal income tax return. The husband is entitled to claim a pension and annuity income modification of $15,000 and the wife is entitled to claim a pension and annuity income modification of $7,000, which is the amount of pension and annuity income she received during the seven months after she became 59½ years of age (June through December), for a total pension and annuity income modification of $22,000 ($15,000 plus $7,000).
Example 2:
A resident husband and wife included pension and annuity income of $45,000 in their Federal adjusted gross income on their 1992 joint Federal income tax return. Both individuals were 62 years of age and retired for the full year of 1992. The husband received pension and annuity income in periodic payments totaling $30,000 for the full year. The wife received pension and annuity income in periodic payments totaling $15,000 for the full year. The pension and annuity income received by each spouse was attributable to personal services performed by each as employees before their retirement. They filed a joint 1992 New York State resident personal income tax return. The husband is entitled to claim a pension and annuity income modification limited to the maximum amount allowed of $20,000 and the wife is entitled to claim a pension and annuity income modification of $15,000, for a total pension and annuity income modification of $35,000 ($20,000 plus $15,000).
(3) Disability income included in Federal adjusted gross income (Tax Law, § 612[c] [3-b]).
(i) General.
(a) All or a portion of disability income received by a taxpayer through a wage continuation plan (see clause [iii][j ] of this paragraph) and included in Federal adjusted gross income may be subtracted in determining New York adjusted gross income, to the extent that such disability income would have been excluded from Federal gross income in accordance with the provisions of section 105(d) of the Internal Revenue Code of 1954 had such provisions continued in effect for taxable years beginning after December 31, 1983. However, the sum of the disability income modification under this paragraph, and the pension and annuity income modification under paragraph (2) of this subdivision, shall not exceed $20,000 for any taxable year. Where a husband and wife file a joint New York State personal income tax return, the $20,000 limitation shall be applied as if they were filing separate New York State personal income tax returns.
(b) The disability income modification referred to in this paragraph is a limited modification reducing Federal adjusted gross income by certain disability retirement payments. The disability income modification permits employees who retired on disability and meet certain requirements as to a permanent and total disability, age, etc. to subtract limited amounts of disability retirement payments from Federal adjusted gross income. The provisions contained in subparagraphs (ii)-(xiii) of this paragraph generally reflect the Federal provisions relating to the computation allowance of the Federal disability income exclusion prior to the repeal of section 105(d) of the Internal Revenue Code of 1954 and also reflect the computation and allowance of the disability income modification for New York State purposes subsequent to the repeal of such section 105(d) of the Internal Revenue Code of 1954.
(ii) Amounts qualifying for the disability income modification. Subject to the limitations of subparagraphs (v) and (vi) of this paragraph the amounts received by a taxpayer through a wage continuation plan as defined in clause (iii)(j) of this paragraph, qualify for the disability income modification if all of the following conditions are satisfied:
(a) the amounts are attributable to a period after the taxpayer retired within the meaning of clause (iii)(h) of this paragraph;
(b) the taxpayer retired on disability within the meaning of clause (iii)(h) of this paragraph;
(c) the taxpayer did not reach age 65 within the meaning of clause (iii)(a) of this paragraph before the end of the taxable year in which such amounts were received;
(d) prior to the repeal of section 105(d) of the Internal Revenue Code of 1954, the taxpayer did not irrevocably waive the right to claim the disability income exclusion by making an election to treat such amounts as a pension or annuity;
(e) the taxpayer was permanently and totally disabled within the meaning of subparagraph (ix) of this paragraph at the time of retirement;
(f) the amounts are accident or health insurance for personal injuries or sickness;
(g) the amounts are wages or payments in lieu of wages;
(h) the amounts are attributable to a period during which the taxpayer was permanently and totally disabled within the meaning of subparagraph (ix) of this paragraph;
(i) the amounts are attributable to a period during which the taxpayer was not performing any services (including services that are not substantial gainful activity within the meaning of subparagraph [xii] of this paragraph) at the taxpayer's usual place of employment for the employer paying such amounts;
(j) the amounts are attributable to a period during which the taxpayer would have been at work but for the permanent and total disability; and
(k) the amounts are attributable to a period before the taxpayer reached mandatory retirement age within the meaning of clause (iii)(e) of this paragraph.
(iii) Definitions. The definitions contained in this subparagraph are applicable for purposes of this paragraph.
(a) Age 65. A taxpayer reaches age 65 on the day of the taxpayer's 65th birthday. Therefore, a taxpayer whose 65th birthday occurs on January 1, 1992 is not considered to reach age 65 during 1991 for purposes of the disability income modification. (This differs from the rule applied for purposes of the additional standard deduction for the aged. For this purpose, a taxpayer is considered to reach age 65 on the day before the taxpayer's 65th birthday.)
(b) Annuity cost recovery. The term annuity cost recovery means the exclusion from gross income under the rules of section 72(b) or 72(d) of the Internal Revenue Code of 1954 of any part of amounts received by a taxpayer as an annuity.
(c) Disability retirement payments. The term disability retirement payments means wages or payments in lieu of wages paid to a disability retiree through a wage continuation plan as defined in clause (j) of this subparagraph.
(d) Disability retiree. The term disability retiree means an employee who retired on disability as defined in clause (h) of this subparagraph.
(e) Mandatory retirement age. The term mandatory retirement age means the age set by an employer for the mandatory retirement of employees in the class to which the taxpayer last belonged, unless such age has been set at an age higher than that at which it has been the practice of the employer to terminate, due to age, the services of such employees, or for purposes of tax avoidance. Where no age is set for mandatory retirement, such term means age 65, or, if higher, the age at which it has been the practice of the employer to terminate, due to age, the services of the class of employees to which the taxpayer last belonged.
(f) Minimum retirement age. The term minimum retirement agemeans the age at which a taxpayer would be eligible to receive a pension or annuity without regard to disability.
(g) Pre-1977 disability retiree. The term pre-1977 disability retiree means a taxpayer who:
(1) retired before January 1, 1977;
(2) retired on disability;
(3) did not reach mandatory retirement age before January 1, 1976; and
(4) was permanently and totally disabled on January 1, 1976, or January 1, 1977 (depending on whichever date was applicable for the Federal exclusion under section 105[d] of the Internal Revenue Code of 1954), or was entitled to claim the sick pay exclusion on December 31, 1975, or December 31, 1976.
(h) Retired and retired on disability. An employee is retired if the employee has ceased active employment in all respects. An employee is retired on disability if the employee retired because of a disability under a disability provision of a plan for employees. In addition, an employee who has actually ceased active employment in all respects because of a disability is retired on disability even though the employee has not yet gone through formal retirement procedures as, for example, where an employer carries the disabled employee in a nonretired status under the disability provisions of the plan solely for the purpose of continuing the employee's eligibility for certain employer-provided fringe benefits. An employee also may be treated as retired on disability immediately after ceasing employment even though accumulated sick leave or annual leave must be used before the employee is formally placed in disability retirement status. Finally, an employee is treated as retired on disability if the employee meets the conditions of subparagraph (xiii) of this paragraph.
(i) Sick pay exclusion. The term sick pay exclusion means the exclusion that was permitted under the rules of section 105(d) of the Internal Revenue Code of 1954 that were in effect prior to the amendment of that section by the Tax Reform Act of 1976.
(j) Wage continuation plan.
(1) The term wage continuation plan means an accident or health plan, as defined in subclause (2) of this clause, under which wages, or payments in lieu of wages, are paid to an employee for a period during which such employee is absent from work on account of a personal injury or sickness. Such term includes plans under which payments are continued as long as the employee is absent from work on account of personal injury or sickness. It includes plans under which there is a limitation on the period for which benefits will be paid, such as 13 or 26 weeks, and also plans under which benefits are continued until the employee is either able to return to work or reaches mandatory retirement age. Such term also includes a plan under which wages or payments in lieu of wages are paid to an employee who is absent from work on account of personal injury or sickness, even though the plan also provides that wages or payments in lieu of wages may be paid to an employee who is absent from work for reasons other than a personal injury or sickness. For purposes of this definition, an employee who is absent from work on account of permanent and total disability is considered absent on account of personal injury or sickness.
(2)
(i) For purposes of this clause, in general, amounts received through an accident or health plan for employees, and amounts received from a sickness and disability fund for employees maintained under the law of a state, a territory or the District of Columbia, will be treated as amounts received through accident or health insurance. In general, an accident or health plan is an arrangement for the payment of amounts to employees in the event of personal injuries or sickness. A plan may cover one or more employees, and there may be different plans for different employees or classes of employees. An accident or health plan may be either insured or noninsured, and it is not necessary that the plan be in writing or that the employee's rights to benefits under the plan be enforceable. However, if the employee's rights are not enforceable, an amount will be deemed to be received under a plan only if on the date the employee became sick or injured, the employee was covered by a plan (or a program, policy or custom having the effect of a plan) providing for the payment of amounts to the employee in the event of personal injuries or sickness, and notice or knowledge of such plan was reasonably available to the employee. It is immaterial who makes payment of the benefits provided by the plan. For example, payment may be made by the employer, a welfare fund, a state sickness or disability benefits fund, an association of employers or employees, or by a insurance company.
(ii) Self-employed individuals. Under section 105(g) of the Internal Revenue Code of 1954, a self-employed individual was not treated as an employee for purposes of such section 105 of the Internal Revenue Code. Therefore, benefits paid under an accident or health plan as referred to in item (i) of this subclause to or on behalf of an individual who is self-employed in the business with respect to which the plan is established will not be treated as received through accident and health insurance for purposes of this clause.
(iv) Special rules.
(a) Applicable period. Subparagraph (ii) of this paragraph provides that amounts received by a taxpayer under a wage continuation plan do not qualify for the disability income modification unless they are attributable to a period during which certain conditions are satisfied. Thus, amounts earned during a period when the taxpayer was performing services at the taxpayer's usual place of employment do not qualify for the disability income modification even though received when the taxpayer is no longer performing such services. Similarly, amounts attributable to a period when the taxpayer was not permanently and totally disabled or had reached mandatory retirement age do not qualify for the disability income modification. For purposes of this paragraph, the period to which an amount is attributable is determined by reference to the provisions of the wage continuation plan under which the amount is paid, and the contract, statute or regulation that provides the terms of employment.
(b) Time of receipt. For purposes of this paragraph, an amount is considered received in the taxable year in which such amount would have been includible in income under the taxpayer's method of accounting if this paragraph did not apply.
(c) Wages or payments in lieu of wages. For purposes of this paragraph, the provisions of a wage continuation plan determine whether amounts received by a taxpayer under such plan are wages or payments in lieu of wages.
(d) Armed Forces. A member of the Armed Forces who retired or separated under a physical disability who may exclude the full amount of disability retirement payments under section 104(a)(4) of the Internal Revenue Code of 1954 to the extent prescribed in section 1.104-1(e) of the Federal Income Tax Regulations may not claim the disability income modification provided for by this paragraph. If only a portion of such taxpayer's disability retirement payments are excludable under section 104(a)(4) of the Internal Revenue Code, the remainder of his or her payments may qualify for the disability income modification.
(v) Limitations applicable to the disability income modification.
(a) General. The disability income modification is subject to the following limitations:
(1) For any week, the modification cannot exceed the lesser of the weekly rate of disability retirement payments or a weekly rate of $100. See clause (c) of this subparagraph for a rule that prorates the maximum weekly modification when disability retirement payments are received for a partial week.
(2) For any taxable year, the amount otherwise modified is reduced by the amount (if any) by which the taxpayer's Federal adjusted gross income exceeds $15,000. Thus, the modification cannot exceed, for a taxable year, the total amount otherwise modified for the taxable year reduced, dollar for dollar, by the amount by which the taxpayer's Federal adjusted gross income exceeds $15,000. See subparagraph (vi) of this paragraph for the application of this rule where joint returns are filed and where separate returns are required to be filed under section 651(b)(4) of the Tax Law.
(b) Weekly rate. The weekly rate of disability retirement payments is determined in accordance with the following rules:
(1) Weekly pay period. If the benefits are paid on a weekly basis, the weekly rate is the weekly amount of such payments.
(2) Biweekly pay period. If the benefits are paid on a biweekly basis, the weekly rate is one half of the biweekly amount of such payments.
(3) Semimonthly pay period. If the benefits are paid on a semimonthly basis, the weekly rate is the semimonthly amount of such payments multiplied by 24 and divided by 52.
(4) Monthly pay period. If the benefits are paid on a monthly basis, the weekly rate is the monthly amount of such payments multiplied by 12 and divided by 52.
(5) Other basis. If the benefits are paid on any other basis, the weekly rate is the annual rate at which such benefits are paid divided by 52.
(6) Two or more plans. If the benefits are paid under two or more wage continuation plans (whether or not maintained by the same employer) the weekly rate is the sum of the weekly rates for all plans.
(c) Partial weeks. A taxpayer may receive disability retirement payments for a period of less than a week if the benefits are not paid on the basis of a weekly period. Even if the benefits are paid on the basis of a weekly period, a taxpayer may receive disability retirement payments for a period of less than a week if the taxpayer begins disability retirement, reaches mandatory retirement age, or dies after the first day of the weekly period. The amount of the modification for a partweek period is determined as follows:
(1) Divide the lesser of the weekly rate of disability retirement payments or $100 by the number of days the taxpayer worked in a normal week before his or her retirement to determine the daily modification.
(2) Multiply the daily modification determined under subclause (1) of this clause by the number of days in the partweek period that correspond to days of the week on which the taxpayer normally worked before the taxpayer's retirement.
(vi) Rules applicable to married taxpayers.
(a)
(1) For Federal income tax purposes prior to the repeal of section 105(d) of the Internal Revenue Code of 1954, a taxpayer who was married at the close of a taxable year must have filed a joint return to claim the disability income exclusion unless the taxpayer and the taxpayer's spouse lived apart at all times during the taxable year. If a taxpayer was married at the close of a taxable year, but the taxpayer and such taxpayer's spouse lived apart for the entire taxable year, such taxpayer may have claimed the disability income exclusion on either a joint or separate return.
(2) For New York State income tax purposes, the provisions of subclause (1) of this clause shall be applicable, except that where a taxpayer and such taxpayer's spouse file a joint Federal income tax return, but are required to file separate New York State personal income tax returns under section 651(b)(4) of the Tax Law, such taxpayer or such taxpayer's spouse may claim the disability income modification on such separate return in accordance with the provisions of clause (e) of this subparagraph.
(b) The following rules apply for purposes of clause (a) of this subparagraph:
(1) The marital status of a taxpayer is the same as such taxpayer's marital status for Federal income tax purposes.
(2) Spouses are not considered to be living apart for any period during which they are members of the same household. An individual is considered a member of a household for any period during which the household is the individual's place of abode. In addition, an individual is considered a member of a household during temporary absences due to special circumstances. A nonpermanent failure to occupy a household as an abode by reason of illness, education, business, vacation or military service is considered a temporary absence due to special circumstances.
(c) In the case of married taxpayers filing a joint New York State personal income tax return, the disability income modification is subject to the following rules:
(1) For any week, each spouse's disability income modification cannot exceed the lesser of that spouse's weekly rate of disability payments or $100. Therefore, if only one spouse receives disability retirement payments, the maximum disability income modification allowable on a joint New York State personal income tax return would be $100 per week. However, if both spouses receive disability retirement payments, the maximum disability income modification allowable on their joint New York State personal income tax return would be $100 per week for each spouse.
(2) For any taxable year, the amount otherwise modified is reduced by the amount by which the total Federal adjusted gross income of both spouses, exceeds $15,000. This rule applies whether the disability income modification is claimed by one or both spouses.
(d) In the case of a married taxpayer who is eligible to file a separate New York State personal income tax return and claim the disability income modification (i.e., a married taxpayer who lived apart from such taxpayer's spouse at all times during the taxable year and who filed a separate Federal return), the amount of such disability income modification is determined under subparagraph (v) of this paragraph. The amount of the disability income modification is determined without regard to the Federal adjusted gross income of the taxpayer's spouse or any disability income modification to which such spouse is entitled.
(e) In the case of a married taxpayer who files a joint Federal income tax return, but who is required to file a separate New York State personal income tax return under section 651(b)(4) of the Tax Law, the disability income modification is determined in the same joint manner as clause (c) of this subparagraph, but shall be attributed to the spouse who would have been required to report the amount as income if the spouses had determined their Federal income taxes separately.
(vii) Examples. The following examples illustrate the provisions of subparagraphs (v) and (vi) of this paragraph. The taxpayers in these examples use the cash receipts and disbursements method of accounting and file New York State personal income tax returns on a calendar year basis. Before their retirement on disability, the taxpayers normally worked Monday through Friday.
Example 1:
Taxpayer A received disability retirement payments qualifying for the disability income modification in year X. A received advance monthly payments of $300 on the first day of each month beginning November 1 of year X. A was unmarried and had other income of $12,000 during year X. A's weekly rate of disability retirement payments $69.23 computed as follows: 12 months times $300 divided by 52 weeks. Since the weekly rate of disability retirement payments is less than $100 and A's Federal adjusted gross income ($12,000 plus $600) is less than $15,000, A may modify the $600 of disability retirement payments received in year X.
Example 2:
The facts are the same as example 1 except that A received advance monthly payments of $500 rather than $300. A's disability income modification for year X is $860 computed as follows:
| (1) Period for which disability retirement payments received: | |
Full weeks | 8 weeks |
Part weeks Nov. 1 | 1 day |
(Dec. 30 - 31) | 2 days |
Total | 8 weeks 3 days |
| (2) Weekly rate of disability retirement payments: | |
12 months times $500 divided by 52 weeks | $111.38 |
(3) Lesser of weekly rate of disability retirement payments or $100 | $100.00 |
| (4) Daily disability income modification: | |
$100 divided by 5 days | $20.00 |
(5) Disability income modification: | |
(8 weeks times $100) plus (3 days times $20) | $860.00 |
Since A's Federal adjusted gross income does not exceed $15,000, A may modify the full amount determined above.
Example 3:
Taxpayer B received disability retirement payments qualifying for the disability income modification in year W. B was entitled to receive advance monthly payments of $1,000 on the first day of each month, beginning September 1, of year W, but did not receive any payments until January of year X. B received a payment of $5,000 in January of year X ($1,000 each for the months of September, October, November and December of year W and $1,000 for the month of January of year X) and, during the remainder of year X, received payments of $1,000 on the first day of each month. B was unmarried and had no other income during year X. B's disability income modification for year X is $5,940 computed as follows:
| (1) Period for which disability retirement payments received: | |
In year X (Jan. 7 - Dec. 27) | 51 weeks |
(Jan. 1 - 4) | 4 days |
(Dec. 30 - 31) | 2 days |
In year W (Sept. 3 - Dec. 28) | 17 weeks |
(Dec. 31) | 1 day |
Total 69 weeks 2 days | 69 weeks 2 days |
| (2) Weekly rate of disability retirement payments: | |
12 months times $1,000 divided by 52 weeks | $230.77 |
(3) Lesser of weekly rate of disability retirement payments or $100 | $100.00 |
| (4) Daily disability income modification: | |
$100 divided by 5 days | $20.00 |
| (5) Disability income modification determined without regard to reduction for Federal adjusted gross income in excess of $15,000: | |
(69 weeks times $100) plus (2 days times $20) | $6,940.00 |
(6) Federal adjusted gross income | $16,000.00 |
(7) Amount by which $16,000 exceeds $15,000 | $1,000.00 |
(8) Disability income modification for year X | *$5,940.00 |
| * The amount of disability income payments received by Taxpayer B, representing payments for September, October, November and December of year W, must be included in Taxpayer B's Federal adjusted gross income for year X since these payments were not received until January of year X. These payments, in addition to the disability income payments Taxpayer B received for the period January through and including December of year X, are used in the calculation of Taxpayer B's disability income modification allowable for year X. If the payments which represent disability income payments for year W were not included in the computation of the disability income modification allowable for year X, the entire amount of such payments received would be fully taxable. Since these payments are used in the calculation of Taxpayer B's disability income modification, Taxpayer B's disability income modification for year X exceeds $5,200. | |
Example 4:
C and D are married taxpayers who lived together during year X. Both C and D received disability retirement payments qualifying for the disability income modification during year X. C received advance weekly payments of $100 each Monday and D received advance monthly payments of $650 on the first day of each month. C had no other income in year X, but D received interest income of $10,000. C and D may claim the disability income modification for year X if they file a joint New York State personal income tax return or if they are required to file separate New York State personal income tax returns. The amount of their combined disability income modification is $2,420 computed as follows:
Taxpayer C: | |
| (1) Period for which disability retirement payments received: | |
In year X (Jan. 7 - Dec. 27) | 51 weeks |
(Dec. 30 - Dec. 31) | 2 days |
In year Y (Jan. 1 - Jan. 3) | 3 days |
Total | 52 weeks |
(2) Lesser of weekly rate of disability retirement payments or $100 | $100 |
| (3) Disability income modification determined without regard to reduction for Federal adjusted gross income in excess of $15,000: | |
52 weeks times $100 | $ 5200 |
| Taxpayer D: | |
| (4) Period for which disability retirement payment received: | |
Full weeks | 51 weeks |
Part weeks (Jan. 1-4 of year X) | 4 days |
(Dec 30-31 of year X) | 2 days |
Total | 52 weeks 1 day |
| (5) Weekly rate of disability retirement payments: | |
12 months times $650 divided by 52 weeks | $150 |
(6) Lesser of weekly rate of disability retirement payments or $100 | $100 |
| (7) Daily disability income modification: | |
$100 divided by 5 days | $20 |
| (8) Disability income modification determined without regard to reduction for Federal adjusted gross income in excess of $15,000: | |
(52 weeks times $100) plus (1 day times $20) | $5,220 |
| Combined Modification: | |
| (9) Total disability income modification determined without regard to reduction for Federal adjusted gross income in excess of $15,000: | |
$5,200 plus $5,220 | $10,420 |
| (10) Federal adjusted gross income: | |
(52 weeks times $100) plus (12 months times $650) plus $10,000 | $23,000 |
(11) Amount by which $23,000 exceeds $15,000 | $8,000 |
(12) Disability income modification for year X | |
($10,420 less $8,000) | $2,420 |
If taxpayers C and D file a joint New York State personal income tax return for year X, they would be allowed to claim a combined disability income modification in the amount of $2,420. If taxpayers C and D are required to file separate New York State personal income tax returns in accordance with section 651(b)(4) of the Tax Law for year X, then each spouse would be entitled to claim a disability income modification computed by dividing each spouse's total amount of disability income received for the year (52 weeks times $100 equals $5,200 for C and 12 months times $650 equals $7,800 for D) by the total amount of disability income received by both spouses $13,000 ($5,200 for C plus $7,800 for D) times their combined disability income modification ($2,420). Taxpayer C would be allowed to claim a disability income modification in the amount of $968 ($5,200/$13,000 × $2,420) and taxpayer D would be allowed to claim a disability income modification in the amount of $1,452 ($7,800/$13,000 × $2,420).
(viii) Amounts not qualifying for the disability income modification.
(a) Accident or health insurance. Except as provided in clause (b) of this subparagraph (relating to annuity cost recovery), amounts paid to a taxpayer through a wage continuation plan are includible in Federal adjusted gross income under section 105(a) of the Internal Revenue Code of 1954 and thus in New York adjusted gross income under section 612(a) of the Tax Law if they are accident or health insurance for personal injuries or sickness and would not have been excludable under section 105(d) of the Internal Revenue Code of 1954 prior to its repeal because:
(1) the amounts exceed the limitations of subparagraphs (v) and (vi) of this paragraph;
(2) the amounts are attributable to a period before the taxpayer retired within the meaning of clause (iii)(h) of this paragraph;
(3) the taxpayer was not permanently and totally disabled within the meaning of subparagraph (ix) of this paragraph at the time of retirement;
(4) the amounts are not wages or payments in lieu of wages;
(5) the amounts are attributable to a period during which the taxpayer was not permanently and totally disabled within the meaning of subparagraph (ix) of this paragraph;
(6) the amounts are attributable to a period during which the taxpayer was performing services at the taxpayer's usual place of employment for the employer paying such amounts; or
(7) the amounts are attributable to a period during which the taxpayer would not have been at work even if not permanently and totally disabled.
(b) Annuity. Amounts paid to a taxpayer under a wage continuation plan qualify for annuity cost recovery if they are attributable to a period after the taxpayer retired within the meaning of clause (iii)(h) of this paragraph; and
(1) the taxpayer did not retire on disability within the meaning of clause (iii)(h) of this paragraph;
(2) prior to the repeal of section 105(d) of the Internal Revenue Code the taxpayer irrevocably waived the right to claim the disability income exclusion by making an election to treat such amounts as a pension or annuity;
(3) the amounts are attributable to a period after the taxpayer reached mandatory retirement age within the meaning of clause (iii)(e) of this paragraph;
(4) the taxpayer retired on disability within the meaning of clause (iii)(h) of this paragraph, was permanently and totally disabled within the meaning of subparagraph (ix) of this paragraph at the time of retirement, and reached age 65 within the meaning of clause (iii)(a) of this paragraph before the end of the taxable year in which such amounts were received; or
(5) the taxpayer retired on disability within the meaning of clause (iii)(h) of this paragraph, was not permanently and totally disabled within the meaning of subparagraph (ix) of this paragraph at the time of retirement, and reached minimum retirement age within the meaning of clause (iii)(f) of this paragraph before the period to which such amounts are attributable.
(ix) Permanent and total disability.
(a) General. Permanent and total disability is the inability to engage in any substantial gainful activity, as defined in subparagraph (xii) of this paragraph, by reason of any medically determinable physical or mental impairment that:
(1) can be expected to result in death; or
(2) has lasted for a continuous period of not less than 12 months; or
(3) can be expected to last for a continuous period of not less than 12 months.
(b) Proof. An individual is not considered permanently and totally disabled unless proof of the disability is furnished in the form and manner prescribed by the Department of Taxation and Finance. See subparagraph (x) of this paragraph for rules relating to the particulars concerning the proof of permanent and total disability required to be furnished.
(x) Proof of permanent and total disability.
(a) General rule. A determination of permanent and total disability is made on the basis of all the facts and circumstances.
(b) Medical evidence and certification required. Except as provided in subparagraph (xi) of this paragraph (relating to certain governmental certificates), a taxpayer is not considered permanently and totally disabled for purposes of subparagraph (ii) of this paragraph unless the taxpayer furnishes:
(1) medical evidence of physical or mental impairment meeting the conditions of clauses (f), (g), (h), (i) and (j) of this subparagraph; and
(2) a properly completed form IT-221 “Disability Income Exclusion.”
(c) Effect of required medical evidence and form IT-221 “Disability Income Exclusion.” Ordinarily, a taxpayer who furnishes the medical evidence and form IT-221 “Disability Income Exclusion” required by clause (b) of this subparagraph is considered permanently and totally disabled for purposes of subparagraph (ii) of this paragraph for the period to which such medical evidence and form IT-221 “Disability Income Exclusion” relate. However, see clause (e) of this subparagraph for an exception to this general rule.
(d) When required. Ordinarily, a taxpayer must submit the medical evidence and form IT-221 “Disability Income Exclusion” required by clause (b) of this subparagraph with each New York State personal income tax return on which the disability income modification is claimed. However, if the taxpayer furnishes medical evidence that indicates there is no reasonable probability that the taxpayer's condition will improve, such medical evidence also relates to subsequent taxable years. In such cases, the taxpayer is not required to furnish medical evidence with New York State personal income tax returns for subsequent taxable years. However, the taxpayer must show on the form IT-221 “Disability Income Exclusion” for such taxable years that previously furnished medical evidence indicates there is no reasonable probability that the taxpayer's condition will improve. In addition, a copy of such previously furnished medical evidence must be retained in the taxpayer's records and such medical evidence must be made available to the Department of Taxation and Finance upon request.
(e) Clearly inconsistent facts and circumstances. Even though a taxpayer furnishes the medical evidence and form IT-221 “Disability Income Exclusion” required by clause (b) of this subparagraph, such a taxpayer is not permanently and totally disabled for purposes of subparagraph (ii) of this paragraph for any period during which the facts and circumstances are clearly inconsistent with the existence of permanent and total disability. The facts and circumstances are clearly inconsistent with the existence of permanent and total disability for periods during which the taxpayer is engaged in substantial gainful activity. In addition, the facts and circumstances generally are clearly inconsistent with the existence of permanent and total disability for periods before and after a period during which a taxpayer is engaged in substantial gainful activity if there is no evidence of change in the taxpayer's condition.
(f) Medical evidence—form. The medical evidence of physical or mental impairment required by clause (b) of this subparagraph must be a report signed by a qualified physician who is identified by name and address.
(g) Medical evidence—identification of impairment. The medical evidence of physical or mental impairment required by clause (b) of this subparagraph must include an identification by a qualified physician of one or more physical or mental impairments of the taxpayer.
(h) Medical evidence—duration of impairment. The medical evidence required by clause (b) of this subparagraph must include the opinion of a qualified physician that the impairment (or combination of impairments) satisfies one of the following conditions:
(1) It can be expected to result in death.
(2) It has lasted for a continuous period of at least 12 months.
(3) It can be expected to last for a continuous period of at least 12 months.
(4) There is no reasonable probability that it will improve.
(i) Medical evidence—severity of impairment. The medical evidence required by clause (b) of this subparagraph must include the opinion of a qualified physician that the impairment (or combination of impairments) satisfies one of the following conditions:
(1) It is a listed impairment within the meaning of subclause (k)(1) of this subparagraph.
(2) It is the medical equivalent of a listed impairment within the meaning of subclause (k)(2) of this subparagraph.
(j) Medical evidence—period for which impairment satisfies duration and severity conditions. The medical evidence required by clause (b) of this subparagraph must include the following additional conclusions:
(1) Unless the taxpayer furnished the information required by clause (b) of this subparagraph with the New York State personal income tax return for a previous taxable year, the opinion of a qualified physician that the conditions of clauses (h) and (i) of this subparagraph were satisfied on the date of the taxpayer's retirement.
(2) The period during which, in the opinion of a qualified physician, the conditions of clauses (h) and (i) of this subparagraph have been satisfied.
(3) Unless, in the opinion of a qualified physician, there is no reasonable probability that the taxpayer's condition will improve, the period during which the conditions of clauses (h) and (i) are expected to be satisfied.
(k) Listed impairment and medical equivalent.
(1) A listed impairment is a physical or mental impairment that is described in the Listing of Impairments in appendix 1 of subpart P of part 404 of title 20 of the Code of Federal Regulations (relating to rights and benefits based on disability under Federal Old-Age, Survivors and Disability Insurance). The rules and definitions in section 404.1525 of title 20 of the Code of Federal Regulations (relating to listing of impairments in appendix 1) are to be applied in determining whether an impairment is described in the Listing of Impairments.
(2) An impairment is the medical equivalent of a listed impairment only if the medical findings for the impairment are at least equivalent in severity and duration to the medical findings for a listed impairment. An opinion that an impairment is the medical equivalent of a listed impairment must be based on medical evidence demonstrated by medically acceptable clinical and laboratory diagnostic techniques.
(xi) Proof of permanent and total disability—certain governmental certificates.
(a) Exception for certain governmental certificates. Clause (x)(b) of this paragraph does not apply in the case of a taxpayer who furnishes a certificate of permanent and total disability meeting the conditions of clause (f) of this subparagraph.
(b) Effect of certain governmental certificates of permanent and total disability. Ordinarily, a taxpayer who furnishes a certificate of permanent and total disability meeting the conditions of clause (f) of this subparagraph is considered permanently and totally disabled for purposes of subparagraph (ii) of this paragraph. However, see clauses (c), (d) and (e) of this subparagraph for exceptions to this general rule.
(c) Revoked certificates. Clause (b) of this subparagraph does not apply with respect to a certificate of permanent and total disability for periods after which such certificate has been revoked by the governmental agency that issued the certificate.
(d) Certificates not based on inability to engage in substantial gainful activity.
(1) Clause (b) of this subparagraph does not apply with respect to a certificate of permanent and total disability that meets the conditions of clause (f) of this subparagraph, but is not based on a determination that the taxpayer is unable to engage in any substantial gainful activity.
(2) A certificate of permanent and total disability described in subclause (1) of this clause is evidence of permanent and total disability for purposes of subparagraph (ii) of this paragraph and is taken into account together with all other facts and circumstances in determining whether the taxpayer is permanently and totally disabled for purposes of subparagraph (ii) of this paragraph.
(3) An example of a certificate of permanent and total disability described in subclause (1) of this clause is a Veterans Administration certificate of permanent and total disability that is based on a determination that the taxpayer is disabled as defined in section 3.340 of title 38 of the Code of Federal Regulations (relating to total and permanent total disability ratings and unemployability) or section 3.342 of title 38 of the Code of Federal Regulations (relating to permanent and total disability ratings for pension purposes). An additional example of such a certificate is a Social Security Administration certificate of permanent and total disability that is based on a determination that the taxpayer is disabled as defined in section 404.1505 of title 20 of the Code of Federal Regulations (relating to disability defined for disability benefits).
(e) Clearly inconsistent facts and circumstances. Even though a taxpayer furnishes a certificate of permanent and total disability meeting the conditions of clause (f) of this subparagraph, such a taxpayer is not permanently and totally disabled for purposes of subparagraph (ii) of this paragraph for any period during which the facts and circumstances are clearly inconsistent with the existence of permanent and total disability. The facts and circumstances are clearly inconsistent with the existence of permanent and total disability for periods during which the taxpayer is engaged in substantial gainful activity. In addition, the facts and circumstances generally are clearly inconsistent with the existence of permanent and total disability for periods before and after a period during which a taxpayer is engaged in substantial gainful activity if there is no evidence of a change in the taxpayer's condition.
(f) Certificate of permanent and total disability.
(1) A Veterans Administration certificate of permanent and total disability must be executed by a person authorized by the Veterans Administration to do so. It must state that the records of the Veterans Administration show the taxpayer's permanent total disability as defined in section 3.340 of title 38 of the Code of Federal Regulations (relating to total and permanent total disability ratings and unemployability) or section 3.342 of title 38 of the Code of Federal Regulations (relating to permanent and total disability ratings for pension purposes) since the applicable date. In addition, it must indicate the disability under which the determination is based.
(2) A Social Security Administration certificate of permanent and total disability must be executed by a person authorized by the Social Security Administration to do so. It must state that the records of the Social Security Administration show the taxpayer's disability as defined in section 404.1505 of title 20 of the Code of Federal Regulations (relating to disability defined for disability benefits) since the applicable date. In addition, it must indicate the disability under which the determination is based.
(3) The applicable date for purposes of this subparagraph depends on the taxpayer's date of retirement. In the case of taxpayers who retired after December 31, 1976, the applicable date is the date of retirement. In the case of taxpayers who retire before January 1, 1977, the applicable date is either January 1, 1976, or January 1, 1977, depending on whichever date was applicable for the Federal exclusion under section 105(d) of the Internal Revenue Code of 1954.
(g) Resubmission not required. A taxpayer who has furnished a certificate of permanent and total disability meeting the conditions of clause (f) of this subparagraph may, instead of resubmitting such certificate for subsequent taxable years, indicate on the form IT-221 “Disability Income Exclusion” for such taxable years that the certificate was previously furnished. In such cases, a copy of such certificate must be retained in the taxpayer's records and such certificate must be made available to the Department of Taxation and Finance upon request.
(xii) Substantial gainful activity. For purposes of this paragraph, substantial gainful activity is the performance of significant duties over a reasonable period of time in work for remuneration or profit (or in work of a type generally performed for remuneration or profit).
(a) General rules.
(1) Full-time work under competitive circumstances generally indicates ability to engage in substantial gainful activity.
(2) Work performed in self-care or the taxpayer's own household tasks, and nonremunerative work performed in connection with hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities is not substantial gainful activity. However, the nature of the work performed may be evidence of ability to engage in substantial gainful activity.
(3) The fact that a taxpayer is unemployed for any length of time is not, of itself, conclusive evidence of inability to engage in substantial gainful activity.
(4) Regular performance of duties by a taxpayer in a full-time competitive work situation at a rate of pay at or above the minimum wage will conclusively establish the taxpayer's ability to engage in substantial gainful activity.
(5) Regular performance of duties by a taxpayer in a part-time competitive work situation at a rate of pay at or above the minimum wage will conclusively establish the taxpayer's ability to engage in substantial gainful activity, if the duties are performed at the employer's convenience.
(6) In situations other than those described in subclauses (4) and (5) of this clause, other factors, such as the nature of the duties performed, may establish a taxpayer's ability to engage in substantial gainful activity.
(b) Examples. The following examples illustrate the application of this subparagraph:
Example 1:
Before retirement on disability, a taxpayer worked for a hotel as a night desk clerk. After retirement, such taxpayer is hired by another hotel as a night desk clerk at a rate of pay exceeding the minimum wage. Since such taxpayer regularly performs duties in a full-time competitive work situation at a rate of pay at or above the minimum wage, such taxpayer is able to engage in substantial gainful activity.
Example 2:
A taxpayer who retired on disability from employment as a sales clerk is employed as a full-time babysitter at a rate of pay equal to the minimum wage. Since such taxpayer regularly performs duties in a full-time competitive work situation at a rate of pay at or above the minimum wage, such taxpayer is able to engage in substantial gainful activity.
Example 3:
A taxpayer retired on disability from employment as a teacher because of terminal cancer. Such taxpayer's physician recommended continuing employment for therapeutic reasons and such taxpayer accepted employment as a part-time teacher at a rate of pay in excess of the minimum wage. The part-time teaching work is done at the employer's convenience. Even though such taxpayer's illness is terminal, the employment was recommended for therapeutic reasons, and the work is part-time, the fact that the work is done at the employer's convenience demonstrates that such taxpayer is able to engage in substantial gainful activity.
Example 4:
A taxpayer, who retired on disability, is employed full-time in a competitive work situation that is less demanding than such taxpayer's former position. The rate of pay exceeds the minimum wage but is about half of such taxpayer's rate of pay in such taxpayer's former position. It is immaterial that the new work activity is less demanding or less gainful than the work in which such taxpayer was engaged before such taxpayer's retirement on disability. Since such taxpayer regularly performs duties in a full-time competitive work situation at a rate of pay at or above the minimum wage, such taxpayer is able to engage in substantial gainful activity.
Example 5:
A taxpayer who is retired on disability from employment as a bookkeeper drives trucks for a charitable organization at such taxpayer's convenience. Such taxpayer receives no compensation, but duties of this nature generally are performed for remuneration or profit. Some weeks such taxpayer works 10 hours, some weeks 40 hours, and over the year such taxpayer works an average of 20 hours per week. Even though such taxpayer receives no compensation and works part-time at such taxpayer's convenience, the nature of the duties performed and the average number of hours worked per week establish such taxpayer's ability to engage in substantial gainful activity.
Example 6:
A taxpayer who retired on disability was instructed by a doctor that uninterrupted bedrest was vital to the treatment of the taxpayer's disability. However, because of financial need, such taxpayer secured new employment in a sedentary job. After attempting the new employment for approximately two months, such taxpayer was physically unable to continue the employment. The fact that such taxpayer attempted to work and did, in fact, work for two months does not, of itself, establish such taxpayer's ability to engage in substantial gainful activity.
Example 7:
A taxpayer who retired on disability accepted employment with a former employer on a trial basis. The purpose of the employment was to determine whether such taxpayer was employable. The trial period continued for an extended period of time and such taxpayer was paid at a rate equal to the minimum wage. However, because of such taxpayer's disability, only light duties of a non-productive, make-work nature were assigned. Unless the activity is both substantial and gainful, the taxpayer is not engaged in substantial gainful activity. The activity was gainful because such taxpayer was paid at a rate at or above the minimum wage. However, the activity was not substantial because the duties were of a nonproductive make-work nature. Accordingly, these facts do not of themselves, establish such taxpayer's ability to engage in substantial gainful activity.
Example 8:
A taxpayer who retired on disability from employment as a bookkeeper lives with a relative who manages several motel units. Such taxpayer assisted the relative for one or two hours a day by performing duties such as washing dishes, answering phones, registering guests, and bookkeeping. Such taxpayer can select the times during the day when such taxpayer feels most fit to perform the tasks undertaken. Work of this nature, performed off and on during the day at such taxpayer's convenience, is not activity of a substantial and gainful nature even if the individual is paid for the work. The performance of these duties does not, of itself, show that such taxpayer is able to engage in substantial gainful activity.
Example 9:
A taxpayer who retired on disability because of a physical or mental impairment accepts sheltered employment in a protected environment under an institutional program. Sheltered employment is offered in sheltered workshops, hospitals and similar institutions, homebound programs, and Veterans Administration domiciliaries. Typically, earnings are lower in sheltered employment than in commercial employment. Consequently, impaired workers normally do not seek sheltered employment if other employment is available. The acceptance of sheltered employment by an impaired taxpayer does not necessarily establish such taxpayer's ability to engage in substantial gainful activity.
(xiii) Special rules for employees retired before January 27, 1975. An employee who retired from work before January 27, 1975, receiving payments under an employer-established plan and who was able to treat such payments as payments from a wage continuation plan in accordance with section 1.105-6 of the Federal Income Tax Regulations prior to the repeal of section 105(d) of the Internal Revenue Code of 1954, may treat such payments as payments from a wage continuation plan for purposes of this paragraph.
(4) Social security benefits and tier 1 railroad retirement benefits included in Federal adjusted gross income (Tax Law, § 612[c] [3-c]). Social security benefits and tier 1 railroad retirement benefits received after December 31, 1983 and included in Federal adjusted gross income pursuant to section 86 of the Internal Revenue Code are to be subtracted in computing New York adjusted gross income.
(d) Federal gain on sale of property having a higher New York State basis (see section 612[c][4] of the Tax Law).
If a taxpayer's Federal adjusted gross income includes any gain from a sale or other disposition of property which such taxpayer owned at the end of the last taxable year under former article 16 of the Tax Law and which then had a higher adjusted basis for New York State personal income tax purposes than for Federal income tax purposes, a modification must be made to adjust for this difference in basis. This modification applies regardless of whether the gain was offset by losses from other sales of property in the Federal income tax return.
(1) Computing the modification for difference in basis. This modification is made by subtracting from Federal adjusted gross income the portion of the gain reported for Federal income tax purposes which is not in excess of the difference in basis.
(2) No modification allowable if property acquired after last effective date of former article 16 of the Tax Law. Where a taxpayer realizes a gain on the sale of property which such taxpayer acquired after the end of the last taxable year under former article 16 of the Tax Law, the modification referred to in this subdivision is not allowed; any such property necessarily has the same basis for both New York State and Federal income tax purposes, regardless of whether the Federal basis represents actual cost of the property or a substituted basis. The end of the last taxable year under former article 16 of the Tax Law means: (i) December 31, 1959, in the case of a taxpayer who reported 1959 income on a calendar-year basis; (ii) December 31, 1959, also, in the case of a taxpayer having a short taxable period ending on that date; and (iii) the last day of any full fiscal year ending in the calendar year 1960 (such as November 30, 1960 in the case of a taxpayer having a fiscal year ending on November 30th).
(3) Income or deductions attributable to 1958. In determining the adjusted basis of any property for New York State personal income tax purposes, any item of income or deduction attributable to the 1958 taxable year must be taken into account as properly includible or deductible for that year, even though the normal New York State personal income tax was cancelled for 1958 so that no New York State personal income tax return may have been filed for that year. For example, deductible depreciation during 1958 must be charged against the property in determining its New York State adjusted basis, even though the taxpayer filed no New York State personal income tax return for 1958.
(4) Separate computation required for each transaction. Where two or more assets are sold at a profit during the same taxable year, and the adjusted basis of each for New York State personal income tax purposes on the last effective date of article 16 of the Tax Law was higher than its Federal basis, the amount to be subtracted from Federal adjusted gross income must be computed separately for each asset sold.
(5) Modification not allowed in certain cases. No modification is to be made where property was disposed of at a loss during the taxable year, even though there was a difference between the New York State and Federal basis at the date of termination of former article 16 of the Tax Law. No modification, adjustment or allowance referred to in this section or any other section is to be made with respect to any New York State capital loss carryover computed under the provisions of former article 16 of the Tax Law. However, any Federal capital loss carryover from years taxable under such article, which is used in computing Federal adjusted gross income in subsequent years, will by virtue of such use be reflected in New York adjusted gross income.
(6) Examples of cases involving different methods of computing depreciation. Under the Internal Revenue Code, accelerated depreciation may be claimed on certain depreciable assets, whereas, under former article 16 of the Tax Law, such accelerated depreciation was not permitted by New York State. As a result, the New York State basis of these depreciable assets under former law was often higher than the Federal basis. The following examples show how to compute the modification for such difference in basis.
Example 1:
On January 2, 1992, taxpayer A sold depreciable business property for which A had paid $15,000 on January 2, 1959, and realized a Federal long-term capital gain of $2,000. On A's Federal income tax return for 1992, A had no other capital transactions and hence properly reflected in Federal adjusted gross income the $2,000 gain.
| New York State basis of the property on December 31, 1959, under former article 16 of the Tax Law: | |
| (cost less 10 percent straight-line depreciation for one year) | $13,500 |
| Federal basis of the property on December 31, 1959 under the Internal Revenue Code: | |
| (cost less depreciation allowable on the double declining balance method) | 12,000 |
| Difference between State and Federal basis on December 31, 1959 | $1,500 |
The difference between the two bases ($1,500) is not in excess of the long-term capital gain of $2,000, therefore the full $1,500 difference is the amount to be subtracted from Federal adjusted gross income.
Example 2:
Assuming the same facts as in example 1, except that the sale of the property resulted in a long-term capital gain of $600. As the difference between the two bases is $1,500, the portion of the gain not in excess of such difference is the full amount of $600, which may be subtracted from Federal adjusted gross income.
(7) Example of cases involving alternate valuation of estate property. A modification of Federal adjusted gross income may be allowable with respect to a gain reported on the sale of property acquired by a bequest, devise or inheritance, as in some instances the New York State basis on the final date of former article 16 of the Tax Law was higher than the Federal basis on the same date. The New York State basis, under former article 16 of the Tax Law, of the property thus acquired was the fair market value at the date of death of the decedent, whereas the Internal Revenue Code has permitted since 1942 (under certain conditions) an alternate valuation of estate property; namely, a valuation of the property as of a date six months after death (one year where death occurs prior to January 1, 1971), or at an intermediate date when the specific property is disposed of during the six months following the date of death of the decedent. Such alternate Federal valuation, when used, represents the Federal basis of the property and is compared with the New York State basis for the purpose of computing the applicable modification referred to in this subdivision.
Example:
A decedent owned corporate securities which had a fair market value of $100,000 on July 1, 1958, the date of such decedent's death. The securities had a fair market value of $90,000 one year later and the executor of such decedent's estate duly elected to use the lower value at the later date for Federal estate tax purposes. B, a resident individual, received the securities as a bequest from the decedent and sold them in year X for $204,000 realizing a gain of $114,000 for Federal income tax purposes ($204,000 minus $90,000). Since B had no other capital transactions in year X, B would include the full gain of $114,000 in Federal adjusted gross income. The difference between the higher New York State basis and the Federal basis was $10,000 ($100,000 minus $90,000), so that the portion of the gain not in excess of the difference in basis was also $10,000 which may be subtracted from Federal adjusted gross income as a modification in determining New York adjusted gross income.
Note:
If the sale of these securities occurred in a taxable year beginning on or after January 1, 1972 and before 1982, the modification pursuant to this subdivision would be 60 percent of $10,000, or $6,000. For taxable years beginning prior to 1972, the modification pursuant to this subdivision would be 50 percent of $10,000 or $5,000.
(8) Computation of modification in other cases.
(i) Further situations (other than those mentioned in paragraph [7] of this subdivision) may arise where gains are included in Federal adjusted gross income from disposition of property acquired prior to the effective date of article 22 of the Tax Law. In each of such instances, reference should be made to the applicable provisions of former article 16 of the Tax Law (including sections 353 through 359 thereof) and to the regulations promulgated under former article 16 of the Tax Law (including parts 266 and 267 of such article 16 regulations, which were formerly articles 487 through 493-1 of such article 16 regulations) to establish whether the property disposed of had a higher adjusted basis for New York State personal income tax purposes, on the termination of former article 16 of the Tax Law, than for Federal income tax purposes.
(ii) Taxpayers who own property which they acquired while former article 16 of the Tax Law was in effect, and which had a higher basis for New York State personal income tax purposes than for Federal income tax purposes when article 22 of the Tax Law became effective, should retain such records as may be necessary to establish this difference in basis in order to justify a modification of Federal adjusted gross income if and when such property is sold at a gain at some future time.
(e) Annuity and other income or gain taxed in prior years under former article 16 of the Tax Law (see section 612[c][5] of the Tax Law).
This modification prevents income already taxed under former article 16 of the Tax Law from being taxed again under article 22 of the Tax Law.
(1) The modification with reference to an annuity applies where in prior years a larger part of the annuity payments were taxable under former article 16 of the Tax Law than were taxable for Federal income tax purposes. In such a case, the taxpayer, each year, may subtract from Federal adjusted gross income whatever amount is includible therein as income from such annuity until the aggregate of the amounts so subtracted equals the excess amount previously taxed under former article 16 of the Tax Law. Other modifications referred to in this section exclude from Federal adjusted gross income various types of income and gain which meet the following conditions:
(i) The item was previously taxed under former article 16 of the Tax Law to the taxpayer or to the trust, estate or decedent, from whom the taxpayer acquired the right to such item of income or gain.
(ii) The item was properly included in Federal adjusted gross income for the current year.
(2) Computation of modification of annuity income. To compute the modification for annuity income which was properly included in a New York State personal income tax return filed by the taxpayer under former article 16 of the Tax Law, the annuity payments reported for New York State personal income tax purposes during the years 1954 to 1959 must be compared with the amount included in Federal adjusted gross income during the same period. For this purpose, the taxpayer is considered to have reported annuity income under former article 16 of the Tax Law for the year 1958, even though, due to cancellation of the normal tax, no New York State personal income tax return was required. (It is usually not necessary to consider years prior to 1954 since the Federal and New York State methods of computing taxable annuity income were similar.) If this comparison shows that a higher amount was taxed under former article 16 of the Tax Law than under the Internal Revenue Code, such difference qualifies for the modification. In case the taxpayer has income from two or more annuity contracts, the reduction of Federal adjusted gross income representing the amount previously taxed under former article 16 of the Tax Law is limited in each taxable year to the income from the specific annuity contract to which the adjustment applies.
Example:
Assume that under the Internal Revenue Code, $300 is the taxable portion of the annuity payments reportable on the annuitant's 1960 Federal income tax return. Between 1954 and 1959, the amount under former article 16 of the Tax Law was $2,600, while, during the same period, $1,800 was included in the individual's Federal adjusted gross income. The amount to be considered as a modification for this previously taxed annuity income under former article 16 of the Tax Law is $800 ($2,600 minus $1,800), but the modification is limited to the taxable portion of the annuity payments reported on the 1960 Federal income tax return, or $300. This $300 can be claimed as a reduction of Federal adjusted gross income in 1960. Additional amounts may be similarly used in later years until the total modification claimed for all years equals the excess amount previously taxed under former article 16 of the Tax Law. Since the excess amount in this example is $800, the taxpayer may claim modifications of $300 in 1960, $300 in 1961, and $200 in 1962 (assuming that such taxpayer continues to report $300 annually from this source on the required Federal income tax returns for these years). The modification described in this paragraph must be computed separately for each annuity contract and may be applied only against the income from such annuity contract.
(3) Modifications for other items previously taxed.
(i) The Federal adjusted gross income of a resident individual taxpayer must be modified to exclude any item of income or gain which was properly included in income or gain and was taxable under former article 16 of the Tax Law, either to the taxpayer or to a decedent by reason of whose death the taxpayer acquired the right to receive the income or gain, or to a trust or estate from which the taxpayer received the income or gain. Therefore, where a resident individual reporting on a calendar-year basis includes in such individual's 1960 Federal adjusted gross income a share of the income of an estate or trust which reports on the basis of a fiscal year ending in 1960, such individual is entitled to a modification to exclude such individual's share of any income or gain which was properly included in the income or gain of the estate or trust under former article 16 of the Tax Law for such fiscal year. Such resident individual's share of the former article 16 item should be computed in the same manner as provided in section 119.2 of this Article for apportioning the New York fiduciary adjustment for years covered by article 22 of the Tax Law.
(ii) Illustrations of the types of modifications under this paragraph are as follows:
Example 1:
Taxpayer A, a resident individual, inherited, prior to the final termination date of former article 16 of the Tax Law, the right to certain income (such as unpaid wages, interest, dividends, installment obligations, etc.) owing to a decedent, which had accrued at the date of death of the decedent. The decedent's New York State and Federal income tax returns were filed on a cash basis, and the income was not received by taxpayer A until 1961, after the estate had been settled. Under former article 16 of the Tax Law, this income was taxable to the decedent in 1959 as income accrued at date of death. Under the Internal Revenue Code, this accrued income with respect to the decedent was not taxable until it was finally paid by the debtor to A as the beneficiary in 1961. This income had already been taxed to the decedent under former article 16 of the Tax Law; therefore, since this income is included in the taxpayer's Federal adjusted gross income for 1961, A is entitled to subtract from such taxpayer's 1961 Federal adjusted gross income the amount received by A in that year from the liquidation of A's inherited claim for New York State personal income tax purposes.
Example 2:
Taxpayer B, a resident individual, filed New York State and Federal income tax returns on a calendar-year basis. B was a beneficiary of an estate which filed fiduciary returns on a fiscal year basis ending June 30th each year. For the fiscal year ended June 30, 1960, the estate realized capital gains of $10,000, which were duly distributed to the taxpayer as trust beneficiary and reported on B's 1960 calendar year Federal income tax return. The New York State personal income tax return of the estate for its fiscal year ended June 30, 1960 was governed by the provisions of former article 16 of the Tax Law, which required the capital gains of $10,000 to be taxed to the estate rather than to the beneficiary, to whom the gains were taxable under the Internal Revenue Code. Since the gains of $10,000 were already taxed to the estate under former article 16 of the Tax Law, a modification may be claimed against B's 1960 Federal adjusted gross income to prevent a second New York State personal income tax on the gains under article 22 of the Tax Law. If these were short-term capital gains, the full amount was included in the taxpayer's Federal adjusted gross income and may be subtracted; if they were long-term capital gains, only 50 percent was included in Federal adjusted gross income, and only $5,000 may be subtracted.
Example 3:
Taxpayer C, a resident individual, filing New York State and Federal income tax returns on a calendar-year basis, was a beneficiary of a trust which filed its New York State and Federal income tax returns on the basis of a fiscal period ending October 31st each year. C received payments of $10,000 each year from the trust, and the trust agreement provided that, if the income of the trust for any year was insufficient to pay this amount, it should be paid out of trust principal so far as necessary. For the fiscal year ended October 31, 1960, the income of the trust was $5,000. The $5,000 of trust income was properly included in taxpayer C's Federal adjusted gross income for calendar year 1960 in accordance with the Internal Revenue Code. The New York State personal income tax return of the trust for its fiscal year ended October 31, 1960 was covered by the provisions of former article 16 of the Tax Law which, unlike the Internal Revenue Code, did not consider any part of the fixed annual payment of $10,000 as a distribution of income; accordingly, the total trust income of $5,000 for the fiscal year ended October 31, 1960 was taxed to the trust under former article 16 of the Tax Law. Accordingly, C's Federal adjusted gross income should be modified for the calendar year 1960 by subtracting the $5,000 of income previously subjected to the New York State personal income tax under former article 16 of the Tax Law as trust income.
(4) Installment sales.
(i) A prior election by a taxpayer to report a gain from an earlier year sale on the installment basis for Federal income tax purposes, but not for New York State personal income tax purposes under former article 16 of the Tax Law, will give rise to a modification under this subdivision. The modification will be the amount of such installment gain included in the taxpayer's Federal adjusted gross income for the taxable year which was previously properly included (because of such taxpayer's election) in a New York State personal income tax return filed by such taxpayer under former article 16 of the Tax Law.
(ii) Where a sale was made during 1958 (when the normal New York State personal income tax was cancelled) and the taxpayer elected to report it on the installment basis for Federal income tax purposes, such taxpayer will be deemed to have made the same election for New York State personal income tax purposes, in the absence of proof to the contrary, so that the modification referred to in this subdivision is not allowable. However, if the taxpayer elected to report the full amount of a 1958 gain for the purposes of an applicable New York State personal income tax which was not cancelled (capital gains tax or unincorporated business tax), but reported it on the installment basis for Federal income tax purposes, a modification will be allowed. That is, such a taxpayer may subtract from Federal adjusted gross income for any subsequent year whatever may have been included therein as an installment of the gain from the 1958 sale.
(f) Interest or dividend income on obligations or securities to the extent such income is exempt from New York State personal income tax under the laws of New York State authorizing the issuance of such obligations or securities, but includible in gross income for Federal income tax purposes. (See section 612[c][6] of the Tax Law.)
Example:
Interest income on bonds, mortgages, and income debenture certificates of limited dividend housing corporations organized under the Private Housing Finance Law is exempt from New York State personal income tax in accordance with the laws authorizing the issuance of these obligations. However, such interest is subject to Federal income tax, as these corporations are not political subdivisions of New York State. Accordingly, a modification reducing Federal adjusted gross income by the amount of any such interest income included therein should be made in order to determine the taxpayer's New York adjusted gross income.
(g)
(1) Any refund or credit for overpayment of income taxes imposed by New York State or any other taxing jurisdiction, to the extent properly included in gross income for Federal income tax purposes. This modification applies to any refund of income taxes which was actually included in Federal adjusted gross income, whether the refund represented New York State personal income taxes or the income taxes of another state, a political subdivision of any state or any foreign government. However, the modification does not include any portion of the total refund which represents interest received. Such interest, whether received in connection with a state, Federal or other income tax refund, is not exempt from New York State personal income tax since it is paid on a claim against the particular government, rather than paid on an obligation thereof arising from the exercise of its borrowing powers. (See section 612[c][7] of the Tax Law.)
(2) Shareholders of S corporations. In the case of a shareholder of an S corporation, where the election provided for in section 660(a) of the Tax Law is in effect, or where such election cannot be made, with regard to the taxes imposed upon or payable by such S corporation, the term income taxes as used in paragraph (1) of this subdivision shall have the same meaning as provided for in section 112.2(c)(2) of this Part.
(h) Compensation and bonuses received for active service in the Armed Forces of the United States during the following periods.
(1) Compensation received for active service in the Armed Forces of the United States on or after October 1, 1961 and prior to September 1, 1962, provided that the amount of such compensation does not exceed $100 for each month of the taxable year during any part of which the taxpayer was engaged in such service. For purposes of this subdivision, the words active service in the Armed Forces of the United States mean active duty (other than for training) in the Army, Navy (including the Marine Corps), Air Force or Coast Guard of the United States, as defined in title 10 of the United States Code. (See section 612[c][8] of the Tax Law.) This modification was allowable only for the years 1961 and 1962 with respect to the calendar months indicated herein on the basis of claims made on a New York State income tax resident return, accompanied by form IT-201-MS, Statement of Military Pay Exemption.
(2) Compensation and bonuses received for active service in the Armed Forces of the United States while a prisoner of war or missing in action during the hostilities in Vietnam, to the extent includible in gross income for Federal income tax purposes. A claim for credit or refund of New York State personal income taxes attributable to the provisions of this paragraph may be filed within two years from the time such member of the Armed Forces returns to the United States. (See section 612[c][8-a] of the Tax Law.)
(i) Interest expense on indebtedness incurred or continued to purchase or carry obligations or securities the interest income on which is subject to New York State personal income tax but exempt from Federal income tax (including that portion of an exempt-interest dividend, as described in section 852[b][5] of the Internal Revenue Code, that is taxable for New York State personal income tax purposes), to the extent such interest is not deductible in determining Federal adjusted gross income and is attributable to a trade or business carried on by the taxpayer. (See section 612[c][9] of the Tax Law.)
Example:
Taxpayer D, a dealer in municipal bonds borrowed $100,000 from a bank to purchase a new issue of California bonds for sale to D's customers. In determining Federal adjusted gross income, D does not include any interest income received from these bonds and D is not permitted to claim any deduction for interest expense on the bank loan. However, the interest received on the bonds is subject to New York State personal income tax and is added to Federal adjusted gross income in determining the taxpayer's New York adjusted gross income; see section 112.2(a) of this Part. To give effect to this subdivision, the interest expense on the bank loan incurred to purchase the bonds must be subtracted from Federal adjusted gross income in determining New York adjusted gross income.
(j)
(1) Ordinary and necessary expenses, other than interest expense on borrowed money (see subdivision [i] of this section), paid or incurred during the taxable year for (i) the production or collection of income which is subject to New York State personal income tax but exempt from Federal income tax (including that portion of an exempt-interest dividend, as described in section 852[b][5] of the Internal Revenue Code, that is taxable for New York State personal income tax purposes), or (ii) the management, conservation or maintenance of property held for the production of such income, and the amortizable bond premium for the taxable year on any bond the interest income on which is subject to New York State personal income tax but exempt from Federal income tax; to the extent that such expenses and premiums are not deductible in determining Federal adjusted gross income and are attributable to a trade or business carried on by the taxpayer. Expenses and amortizable bond premium otherwise allowable which are directly attributable to any class of income (either taxable or exempt for New York State personal income tax purposes) must be allocated to the class to which they relate, and if an item of expense or premium is attributable to both taxable and exempt income, a reasonable portion thereof, based on all facts and circumstances, must be allocated to each class. (See section 612[c][10] of the Tax Law.)
(2) Income which is subject to New York State personal income tax but exempt from Federal income tax consists primarily of interest income on obligations of other states and their municipalities (see section 112.3[a] of this Part) and of certain Federal authorities, commissions and instrumentalities which the laws of the United States exempt from Federal income tax but not from state income taxes. (See section 112.2[b] of this Part.) Expenses, other than interest expense, which are attributable to the production or collection of such income or the management of such securities are fully deductible in determining Federal adjusted gross income, provided they are business expenses. Consequently, no modification of adjusted gross income will ordinarily be allowable with reference to such expenses. Where expenses of this type are nonbusiness expenses, as in the case of an individual investor, a modification of Federal itemized deductions will be allowable; see section 115.3(c) of this Article.
(3) With reference to any amortizable premium on bonds whose interest is exempt from Federal income tax, a modification of Federal adjusted gross income is allowable under this section, provided such amortizable premium for the taxable year is attributable to a trade or business carried on by the taxpayer.
Example:
An individual engaged in business as a building contractor owns state and local bonds (other than bonds issued by New York municipalities) which such individual posts as security in lieu of performance bonds to guarantee completion of contracts entered into in the course of business operations. Where such bonds are purchased at a premium, the taxpayer is required to amortize the premium under the Internal Revenue Code even though no deduction for the amortized premium is allowed in determining Federal adjusted gross income. Since the bonds are used in the taxpayer's contracting activities, the premium which is amortized is attributable to a trade or business carried on by such taxpayer, and the amount allocable to the taxable year, computed in accordance with the Federal rules regarding amortization of bond premiums, is to be deducted from Federal adjusted gross income in determining New York adjusted gross income.
(k) The amount required to be subtracted from Federal adjusted gross income in accordance with section 612(c)(11) of the Tax Law where the taxpayer has exercised the election to claim the optional modification thereunder. (See section 112.7 of this Part.)
(l) That portion of pension and annuity income and other income or gain, included in Federal adjusted gross income, which was properly included in total New York income in prior years under section 612(b)(7) of the Tax Law, as such section was in effect for taxable years beginning before 1988. Where a modification is claimed under this subdivision, the taxpayer must attach, to such taxpayer's New York State personal income tax return, a statement showing (1) the nature of the income excluded, (2) the computation of the modification, (3) the year and amount previously included in New York adjusted gross income for each prior taxable year, and (4) the amount deducted by the corporation for each prior year. (See section 612[c][12] of the Tax Law.)
(m) The amount required to be subtracted from Federal adjusted gross income in accordance with the provisions of section 612(i) of the Tax Law (see section 112.8 of this Part) relating to an allowance for cost depletion in the case of mines, oil and gas wells and other natural deposits. The modification referred to in this subdivision is not allowable when the cost or other basis has been completely recovered in previous years pursuant to this subdivision. (See section 612[c][13] of the Tax Law.)
(n) That portion of wages and salaries paid or incurred for the taxable year for which a deduction is not allowed under section 280C of the Internal Revenue Code. (See section 612[c][15] of the Tax Law.)
(o) The amount to be subtracted from Federal adjusted gross income in accordance with section 612(r) of the Tax Law (see section 112.11 of this Part) relating to any loss realized from the sale or other disposition of property acquired from a decedent. (See section 612[c][19] of the Tax Law.)
(p) The amounts to be subtracted from Federal adjusted gross income in accordance with section 612(o) of the Tax Law relating to gains on new business investments. (See section 612[c][20] of the Tax Law.)
(q) The amount required to be subtracted from Federal adjusted gross income by section 612(n) of the Tax Law (see section 112.9 of this Part), relating to the disposition of stock or indebtedness of a corporation that has made an election under subchapter S of chapter one of the Internal Revenue Code for any taxable year of such corporation beginning after December 31, 1980, but for which the election to be treated as a New York S corporation under section 660 of the Tax Law has not been made. (See section 612[c][21] of the Tax Law.)
(r) In the case of a shareholder of an S corporation (see section 612[c][22] of the Tax Law):
(1)
(i) Where the election to be treated as a New York S corporation under section 660(a) of the Tax Law has not been made with respect to such corporation, any item of income of the S corporation included in Federal gross income pursuant to section 1366 of the Internal Revenue Code.
(ii) Exception. A resident shareholder of an S corporation that cannot make the election provided for under section 660(a) of the Tax Law (e.g., a foreign S corporation [i.e., an S corporation that is not incorporated in New York State] that does not do business in New York State or an S corporation that is taxed under article 9 of the Tax Law), cannot make the modification referred to in this paragraph.
(2) In the case of an S termination year, paragraph (1) of this subdivision shall apply to the amounts of income determined under section 612(s) of the Tax Law (see section 112.12 of this Part).
(s) For taxable years beginning after December 31, 1981, except with respect to property which is a qualified mass commuting vehicle (as described in section 168[f][8][D] of the Internal Revenue Code), any amount which is included in Federal adjusted gross income solely as a result of an election made in accordance with the provisions of section 168(f)(8) of the Internal Revenue Code as such section was in effect for safe harbor lease agreements entered into prior to January 1, 1984. (See section 612[c][24] of the Tax Law.)
(t) For taxable years beginning after December 31, 1981, except with respect to property which is a qualified mass commuting vehicle (as described in section 168[f][8][D] of the Internal Revenue Code), any amount which the taxpayer could have excluded from Federal adjusted gross income had such taxpayer not made the election provided for in section 168(f)(8) of the Internal Revenue Code, as such section was in effect for safe harbor lease agreements entered into prior to January 1, 1984. (See section 612(c)(25) of the Tax Law.)
(u) In the case of property placed in service in taxable years beginning before January 1, 1994, for taxable years beginning after December 31, 1981, except with respect to property subject to the provisions of section 280-F of the Internal Revenue Code and property subject to the provisions of section 168 of the Internal Revenue Code which was placed in service in New York State for taxable years beginning on or after January 1, 1985, with respect to property which is subject to the provisions of section 168 of the Internal Revenue Code, the amount allowable as the depreciation deduction determined under section 167 of the Internal Revenue Code as such section would have applied to property placed in service on December 31, 1980. Where depreciation, as referred to in this subdivision, is being claimed for New York State personal income tax purposes, form IT-399 must be submitted with the taxpayer's New York State income tax return. Also, see section 112.2(v) of this Part, relating to the corresponding addition modification. (See section 612[c][26] of the Tax Law.)
(v) Upon the disposition of property for which accelerated cost recovery system or modified accelerated cost recovery system deductions were not allowed for New York purposes in accordance with section 612(b)(25) of the Tax Law (see section 112.2[v] of this Part) and for which depreciation deductions were allowed in accordance with section 612(c)(26) of the Tax Law (see subdivision [u] of this section), the amount, if any, by which the total of the accelerated cost recovery system or modified accelerated cost recovery system deductions allowed on the property for which modifications were required under section 612(b)(25) of the Tax Law, (see section 112.2[v] of this Part) exceeds the total of the New York depreciation deductions allowed on such property under section 612(c)(26) of the Tax Law. This modification is to be made in the year of disposition of the property. For purposes of this subdivision, the term disposition has the same meaning as provided in section 106.1(i)(1)(v) of this Title. Also, relating to the corresponding addition modification, see section 112.2(x) of this Part. (See section 612[c][28] of the Tax Law.)
(w)
(1) The amount received by any person as an accelerated payment or payments of part or all of the death benefit or special surrender value under a life insurance policy as a result of any of the diagnoses specified in section 1113(1)(a)(1)(A) and (B) of the Insurance Law, (i.e., [i] a terminal illness defined as a life expectancy of 12 months or less, or [ii] a medical condition or extraordinary medical care or treatment regardless of life expectancy) to the extent such amount is includible in gross income for Federal income tax purposes.
(2) The amount received by any person as a viatical settlement in accordance with the provisions of article 78 of the Insurance Law to the extent such amount is includible in gross income for Federal income tax purposes. For purposes of this paragraph, a viatical settlement means an agreement in which the owner of a life insurance policy on a person who has a catastrophic or life threatening illness or condition, assigns the death benefit of such policy to an entity for compensation or anything of value, which is less than the expected death benefit value of the insurance policy.
(3) The amounts referred to in paragraphs (1) and (2) of this subdivision may be subtracted from Federal adjusted gross income in accordance with section 612(c)(30) of the Tax Law.
(x) Supplemental annuities paid to individuals under the Railroad Retirement Act of 1974, as amended, to the extent they are includible in gross income for Federal income tax purposes but exempt from state income taxes under the laws of the United States, such supplemental annuities being those authorized by Public Law 93-445 (88 Stat. 1305, 45 U.S.C.A. 231a[b]). The modification is only allowed with respect to supplemental annuities paid, under the Railroad Retirement Act of 1974, to an individual who is entitled to an annuity under section 2(b)(1) of the Railroad Retirement Act of 1974 (45 U.S.C.A. 231a[b][1]), as amended, who (1) has attained age 65, or attained age 60 and completed 30 years of service; (2) has completed 25 years of service; and (3) had a current connection with the railroad industry at the time such individual's regular annuity began to accrue. The Railroad Retirement Act of 1937 was amended in its entirety and completely revised by Public Law 93-445. The act, as thus amended and revised, was redesignated the Railroad Retirement Act of 1974.
(y) Railroad unemployment benefits (including sickness benefits paid in lieu of unemployment benefits) to the extent they are includible in gross income for Federal income tax purposes but exempt from State income taxes under the laws of the United States (45 U.S.C.A. 352[e]).
(z)
(1) In the case of a resident individual or partner of a partnership doing an insurance business as a member of the New York Insurance Exchange, as described in section 6201 of the Insurance Law, any item of income or gain of such business which is the individual's or partner's distributive or pro rata share for Federal income tax purposes or which the individual or partner is required to take into account separately for Federal Income tax purposes. (See section 617-a of the Tax Law.)
(2) With regard to the related modification increasing Federal adjusted gross income, see section 112.2(ab) of this Part.
(aa) Amounts contributed to trust funds established pursuant to:
(1) section 54.15 of the Arts and Cultural Affairs Law, for the purpose of the preservation, improvement and promotion of the Executive Mansion as a historical and cultural and resource of the State of New York; or
(2) section 55.15 of the Arts and Cultural Affairs Law, for the purpose of the preservation and improvement of the natural and historic resources constituting the natural heritage of the people of the State of New York in furtherance of their welfare and prosperity; to the extent such amounts are not deducted in determining Federal adjusted gross income or Federal taxable income.
20 CRR-NY 112.3
Current through February 15, 2022
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