New York State tax implications of federal COVID relief for tax years beginning before January 1, 2022
The federal Coronavirus Aid, Relief and Economic Security Act (CARES Act), Consolidated Appropriations Act, 2021, and American Rescue Plan Act of 2021 contained a number of tax provisions that impact the computation of taxable income for individuals and businesses, modify eligibility for certain tax credits, and provide assistance to taxpayers and businesses affected by COVID-19.
New York State follows the federal tax treatment resulting from some of these federal provisions and they will automatically be reflected in the New York State personal income and corporation tax computations. However, others require state-specific adjustments on New York State personal income and corporation tax returns.
Below are questions and answers regarding New York State’s treatment of some of the most high-profile items. These and other provisions that require state adjustments are explicitly addressed in tax form instructions, such as Form IT-558-I, New York State Adjustments due to Decoupling from the IRC, and Form CT-225-I, New York State Modifications, (or Form CT-225-A for filers of combined franchise tax returns). See Previous year tax forms (by tax year) to view the 2020 and 2021 forms and instructions.
Generally, if a federal provision is not specifically addressed in the New York State form instructions, it means no separate adjustments are necessary at the state level.
Note: For tax years beginning on or after January 1, 2022, any changes to the Internal Revenue Code after March 1, 2020, will apply to the New York State and New York City personal income tax, unless a specific modification is otherwise required under the Tax Law.
Frequently Asked Questions
Will my federal economic impact payments (i.e. individual stimulus relief) be subject to New York State personal income tax?
These payments are not included in federal adjusted gross income. You are not required to include the payments when determining your New York adjusted gross income.
The federal CARES Act waived required minimum distributions (RMDs) for retirement plans for the 2020 tax year. Subsequent guidance for taxpayers who already took a 2020 RMD extended the deadline to rollover these distributions into a retirement account. Will NYS follow this federal treatment?
New York State follows the federal treatment of RMDs. This includes the waiver of RMDs for tax year 2020 and the extended rollover period.
The federal CARES Act allows coronavirus-related distributions from an eligible retirement plan to be included in income over a three-year period. Will New York State follow this treatment?
New York State follows the federal treatment. The income will be included in New York adjusted gross income in the same year it is included in federal adjusted gross income. Note: This treatment will continue for tax years beginning on or after January 1, 2022.
Are Payroll Protection Program (PPP) loans that are forgiven subject to New York State personal income and corporation taxes?
New York State follows the federal treatment for both personal income and corporation taxes. If the forgiven loan is excluded from federal income, it is also excluded from New York income. Note: This treatment will continue for tax years beginning on or after January 1, 2022.
The federal CARES Act changed the rules for claiming certain net operating losses (NOLs). Will New York State follow the federal treatment of NOLs?
New York State does not follow the CARES Act changes to NOLs. New York State personal income taxpayers must recompute their federal NOL deduction using the rules in place prior to any CARES Act or subsequent federal changes. For example:
- a federal NOL deduction for losses incurred in tax year 2018 or later is limited to 80% of the current year federal taxable income (computed as if the changes to the IRC after March 1, 2020, did not occur);
- there is no carryback of losses incurred in tax year 2018 or later (except for certain farming losses); and
- excess business losses disallowed will be treated as a net operating loss carryforward to the following tax year.
For New York State income tax purposes, an NOL deduction is limited to the lesser of:
- the federal NOL deduction computed using the rules in place prior to any CARES Act or subsequent federal changes, or
- the federal taxable income computed:
- using the rules in place prior to any CARES Act or subsequent federal changes, and
- without the federal NOL deduction.
For New York State business corporation tax purposes, New York had its own rules for NOLs pre-CARES Act. These rules were not impacted by the federal changes. See Form CT-3.4, Net Operating Loss Deduction.
The federal CARES Act made changes to depreciation of qualified improvement property (QIP). Will New York State follow the federal treatment including the adoption of the new class life of 15 years under the MACRS and 20 years under the ADS depreciation rules?
New York State personal income tax does not conform to the federal changes to QIP depreciation.
For tax year 2019 and earlier, New York State personal income tax returns must be prepared using information from the federal income tax returns the IRS made available prior to March 1, 2020. To find copies of the 2019 federal forms issued prior to March 1, 2020, see 2019 federal income tax returns—supplement to N-20-7.
For tax years 2020 and 2021, the differences in New York State and federal treatment should be reported using Form IT-558, New York State Adjustments due to Decoupling from the IRC.
New York State corporation tax generally follows the federal treatment of QIP depreciation. However, if a federal special depreciation deduction allowed under Internal Revenue Code (IRC) section 168(k) for QIP (or any other qualified property) was claimed, Form CT-399, Depreciation Adjustment Schedule, must be filed to compute the New York State depreciation deduction without regard to IRC section 168(k).
The federal CARES Act allows taxpayers that claim the standard deduction to take up to a $300 above-the-line deduction for charitable contributions on their 2020 federal return. Will New York State follow this federal treatment?
New York State does not follow this CARES Act provision. If a taxpayer claims the deduction on their 2020 federal return, they must add it back using Form IT-558, New York State Adjustments due to Decoupling from the IRC.
The federal American Rescue Plan Act of 2021 includes a provision that allows individuals to exclude up to $10,200 of unemployment compensation from federal tax on their 2020 federal return. Does this exclusion also apply to New York State tax?
No. Under longstanding New York State law, unemployment compensation is subject to tax, which means you should report the full amount of unemployment compensation on your New York State personal income tax return. If you exclude unemployment compensation on your 2020 federal return, as allowed under the American Rescue Plan Act of 2021, you must add back the excluded unemployment compensation on your 2020 New York State return.
The 2020 Form IT-558, New York State Adjustments due to Decoupling from the IRC, has been updated to report this add-back as adjustment code A-011. See Personal income tax up-to-date information for 2020 (Articles 22 and 30).
If you have not yet filed your 2020 New York State return, and file using software, the software should already account for this update and add back the unemployment compensation excluded from federal gross income. If you do not file using software, make sure to add back the federal unemployment compensation exclusion.
If you already filed your 2020 New York State return, and you did not add back unemployment compensation that was excluded from your federal gross income, then you must file an amended return with New York State. If you did not exclude unemployment compensation from your federal gross income, do not file an amended return with New York State.
Can wages and salaries disallowed as a federal business expense deduction due to receipt of the federal Employee Retention Credit be deducted when computing New York State taxable income for New York State personal income and corporation taxes?
When computing New York State taxable income, the amount of the wages and salaries disallowed as a federal business expense deduction due to an employer’s receipt of the federal Employee Retention Credit may be deducted using modification code S-205, on Form IT-225, New York State Modifications (personal income tax) and on Form CT-225, New York State Modifications or Form CT-225-A, New York State Modifications (corporation tax).