We've now had several people contact us regarding letters they've received from the New York State Department of Taxation and Finance. They are "Statement of Proposed Audit Changes" and were sent because the State believed the subtraction of the LOSAP payments from the payees taxable income was done incorrectly for the 2017 tax year.
In the cases we've specifically reviewed, the LOSAP payment received by the individual is eligible to be subtracted from New York State income, but the individual did not take the subtraction correctly.
On the 2017 IT-201 (the NYS Resident Income Tax Return form), New York subtractions are listed on lines 25 to 31.
Line 26 is where NYS retirement system payments and Federal pensions are to be listed. LOSAP is not either of these and this is not the correct place to take the subtraction.
Line 29 is where a taxpayer is allowed to subtract up to $20,000 of "other pensions and annuities". Prior to 2014, this is actually where a taxpayer would exempt LOSAP payments from NYS income tax pursuant to a ruling from the Tax and Finance department. But that changed with the April 2014 change to the NYS Tax Law; therefore, this is not the appropriate place either.
Line 31 is where "other" subtractions are to be listed, and references form IT-225. If you review form IT-225, you will find that the LOSAP subtraction is subtraction S-130. That is the appropriate place to take the subtraction, which then flows through back to Line 31 on the IT-201.
However - it is important to note there are two stipulations in order to qualify for the subtraction. First the taxpayer must be over age 59 1/2. Second, the payment must not have been paid as a lump sum. The first condition is easy for the State to determine. The second is not. We don't know if the State is making a judgement call on whether-or-not the payment was a lump-sum; to this point that was not cited as a reason for a notice.
In one situation, the tax form that was received did not indicate that the payment was for a LOSAP, and so the State flagged it. We provided a letter for the individual to send to the State, certifying that the payment was, in fact, a LOSAP payment. In this particular case, the payment was being made from an insurance annuity and LOSAP was not indicated on the tax form.
If you received one of these notices, it is possible you will have to file an amended return and properly take the subtraction.
For 2020, the State has not yet released the 2020 IT-201. As of 2019, the lines referenced above did not change - a taxpayer would still use form IT-225 and flow through the subtraction to line 31. Read the 2020 instructions carefully.
Please contact your tax professional with any questions. This article is not tax advice, but informational only.
Yesterday, December 3, 2020, Governor Cuomo issued Executive Order 202.79, which continued the State Disaster Emergency through January 1, 2021.
Although this was expected, we now know officially that the time period for which points could be awarded in 2020 due to the COVID-19 pandemic is from March 7, 2020 to December 31, 2020. This also means we know the maximum number of points that can be awarded - 49.
The statute provides that 5 points can be awarded for each complete month. There were 9 complete months (April through December) plus 25 days in March (March 7 to March 31). Regardless of how you pro-rate for the partial month of March, you are likely to arrive at 4 plus a fractional number of points. Since a firefighter cannot earn a fractional point under a volunteer firefighter point system, there is no value in the additional fractional point. Therefore, the maximum points that could be awarded is 49.
That said, we continue to stress that the statue was designed to allow sponsors to grant points to volunteers for events that were cancelled or restrictions that were put in place that limited volunteer responses to emergencies. Therefore, we believe the number of points awarded should tie in some way to the cancelled activities or other restrictions. If the Fire Department cancelled 20 activities in 2020, then 49 points could be viewed as excessive. The challenge is dealing with calls, since that is based on an all-or-nothing 25 points (or possibly 50) based on attending a minimum percentage of the calls. Each sponsor has to consider this carefully with the fire department.
The next potential development we will be monitoring is if Executive Order 202 is further continued into 2021. If this occurs, then points could possibly be awarded for the COVID-19 pandemic in 2021 as well (again, depending on if activities are cancelled in 2021). The statute requires the resolution to be adopted by April 30, 2021, with that deadline imposed presumably for the 2020 calendar year (though it isn't expressly stated as such). Therefore, if fire departments are forced to cancel activities past April 30, 2021, we may need additional legislative action to create a new deadline for the 2021 calendar year. Otherwise, a practical solution could be for the sponsoring board to adopt the resolution on/before April 30, 2021 authorizing points to be awarded in 2021, but stipulate the actual number (not to exceed 5 per month) would be determined at a later date when it is known what actual activities were cancelled.
For the complete list of posts on this topic, please HERE.
Sharing my thoughts and insights on LOSAP, and occasionally other topics.