Treatment of 8915E covid IRA income on NY pension & annuity exclusion line

[JoeyVegas]

A 59 year old client elected the 3-yr income deferral spread on his 2020 taxes. He turned 59 1/2 in March 2021. Regarding the 1/3 of his IRA distribution that he shows as income in 2021, is any of it excludable from income on his New York return on the Pension & Annuity Income Exclusion line now that he's over 59 1/2? Or does NY go by his age when he actually withdrew the money in 2020?
Thank you.

[Rapid Robert]

Not in NY, but I think so. The only proviso is that the exclusion only applies to amounts received after turning age 59.5, and it's not clear when during the year the retirement distribution deferral is considered received. To be safe, I'd pro-rate, in other words if he has $20K of deferred income for the year and he was age 59.5 or more for 10 months, then I'd exclude 5/6ths, or $16,666.

[New York Enrolled Agent]

A 59 year old client elected the 3-yr income deferral spread on his 2020 taxes. He turned 59 1/2 in March 2021. Regarding the 1/3 of his IRA distribution that he shows as income in 2021, is any of it excludable from income on his New York return on the Pension & Annuity Income Exclusion line now that he's over 59 1/2? Or does NY go by his age when he actually withdrew the money in 2020?
Thank you.

Your client received the distribution before attaining age 59.5 - IMO, it won’t qualify for the exclusion despite the special circumstances.

You can review section 612 of NYS tax law or for “easy language” review page 13 of NYS publication 36 - “only for amounts received on or after you became 59.5”

[JoeyVegas]

Thank you for your assistance. It is much appreciated.

[Rapid Robert]

I don't question NYEA posts lightly, but if I understand the position being put forth, an "over-age-59.5-at-beginning-of-2020" taxpayer who took, say, a $60K disaster distribution in 2020 and accepted the default 3-year spread, would get the $20K exclusion only in 2020, and nothing for the following two years?

What if someone only took a $20K total distribution in 2020 and the 3-year spread? Could they still take the $20K exclusion for NY in 2020, even though the taxable amount was only $6,666?

Does NY have any special disaster distribution rules, as does federal?

Oh, if only they used more technical terms such as "recognized" or "realized", instead of "received"!

And as a footnote, one of the premier professional tax software programs (UltraTax) would happily allow the $20K exclusion in 2021 in the case of the OP (or more simply, the 60-yr old or over taxpayer).

[New York Enrolled Agent]

I don't question NYEA posts lightly, but if I understand the position being put forth, an "over-age-59.5-at-beginning-of-2020" taxpayer who took, say, a $60K disaster distribution in 2020 and accepted the default 3-year spread, would get the $20K exclusion only in 2020, and nothing for the following two years?

What if someone only took a $20K total distribution in 2020 and the 3-year spread? Could they still take the $20K exclusion for NY in 2020, even though the taxable amount was only $6,666?

1. If the distribution of $60K in 2020 was distributed after the taxpayer attained age 59.5 then I see no reason why the exclusion would not be available all three years (assuming no repayments). The $20K each year would be includible in gross income for each year and thus I see no obstacle to the application of section 612 of NYS Tax Law.

2. The amount excluded cannot be in excess of the corresponding IRA inclusion in gross income. In your example, the $6,666 amount included in federal gross income would be a limitation on the exclusion.

[New York Enrolled Agent]

I

And as a footnote, one of the premier professional tax software programs (UltraTax) would happily allow the $20K exclusion in 2021 in the case of the OP (or more simply, the 60-yr old or over taxpayer).

I have no idea what Ultra Tax does nor what data a practitioner may or may not input.

However, NYS Tax Law, Article 22, Section 612 seems (at least to me) to have clear and unambiguous language - obviously any forum user should read the entire relevant content and not just my snip. JoeyV said the distribution was received in 2020 prior to the taxpayer attaining the required age.


(3-a) Pensions and annuities received by an individual who has
attained the age of fifty-nine and one-half, not otherwise excluded
pursuant to paragraph three of this subsection, to the extent includible
in gross income for federal income tax purposes, but not in excess of
twenty thousand dollars, which are periodic payments attributable to
personal services performed by such individual prior to his retirement
from employment, ...

[Rapid Robert]

"I have no idea what Ultra Tax does" - I stated what UltraTax does, there's no mystery. And yes, we all know that tax software is not a complete substitute for tax law. My point was that someone who never even thought to ask the question might just follow what their software allowed and what the tax agency accepted into the efile system upon transmission.

Thank you for posting the relevant law section. Not being a NY preparer, I don't have convenient access to all the tax laws, and am glad that folks can sometimes come here to be educated about the laws of states where they don't normally practice. I was previously unaware there even was such a provision, since I've never had a NY retiree for a client. However, if you don't want to continue the discussion with someone who has not read the entire code section you refer to, I understand.

"If the distribution of $60K in 2020 was distributed after the taxpayer attained age 59.5 then I see no reason why the exclusion would not be available all three years "

Here's the part where I'm still confused. If the distribution was entirely received in 2020 and the full $20K exclusion was used, then how is any exclusion available in the following two years, when nothing was received? On the other hand, if the person over 59.5 who received the 2020 distribution is eligible for the exclusion for all 3 years, that would imply something was received in each of those years, so why wouldn't the taxpayer in the OP be eligible in the first year they attained 59.5?

(If you think the answer is evident in some other paragraph of the code, let me know and I'll try to go find it).

[New York Enrolled Agent]

"I have no idea what Ultra Tax does" - I stated what UltraTax does, there's no mystery. And yes, we all know that tax software is not a complete substitute for tax law. My point was that someone who never even thought to ask the question might just follow what their software allowed and what the tax agency accepted into the efile system upon transmission.

Thank you for posting the relevant law section. Not being a NY preparer, I don't have convenient access to all the tax laws, and am glad that folks can sometimes come here to be educated about the laws of states where they don't normally practice. I was previously unaware there even was such a provision, since I've never had a NY retiree for a client. However, if you don't want to continue the discussion with someone who has not read the entire code section you refer to, I understand.

(If you think the answer is evident in some other paragraph of the code, let me know and I'll try to go find it).

RR - no answer is evident.

As far as I've seen there is no guidance on this. In the scenario you posted in post #5, I think there would be no issue - the scenario with the $60K might be a problem. IMO there is no doubt the "received" portion is okay. NYS provided guidance (not legislative) that NY would follow the rules in the 3-year election. Will NY determine that the $20K reportable in year 2 not be eligible due to the $20K provision used in 2020. Only time will tell but the money was received after attaining age 59.5 and was included in federal gross income. You raise a good point but I think that it would fly. Very few taxpayers took advantage of the provision so I don't know if future guidance will say anything to the contrary?????

You noted about access to NYS tax law - this should get you there for any review now or in the future. The personal income tax is in Article 22.
Legislation | NY State Senate (nysenate.gov)