New York State Income Tax Exemption for LOSAP Payments

The New York State tax law allows a taxpayer to exempt payments received from a length of service award program (or LOSAP) from New York State (NYS) income tax provided the following conditions are met:

1. The taxpayer must be over age 59 ½.
2. The payment must not be made in the form of a lump sum as defined in section 402(e)(4)(A) of the Internal Revenue Code and taxed under section 603 of the NYS tax law.
3. The payment must be from a service award program adopted pursuant to Article 11-A (fire department programs), Article 11-AA (ambulance squad defined contribution programs), Article 11-AAA (ambulance squad defined benefit programs) or Article 11-AAAA (supplemental service award programs).

All three of these requirements must be met in order to take the NYS income tax exemption. The result is that payments from a LOSAP are not universally exempt from NYS income tax, and a taxpayer must carefully review his/her unique situation when preparing his/her NYS tax return.

Each taxpayer is encouraged to review the instructions of NYS tax form IT-225, specifically subtraction S-130. Here is a link to the current version:
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https://www.tax.ny.gov/pdf/current_forms/it/it225i.pdf

Firefly Admin Inc. cannot provide income tax advice, and this article is not intended to be such. Anyone reading this article is encouraged to forward it to your tax professional for review.