Ever since New York decoupled from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the 2020/21 Budget Act, tax practitioners have been asking how one reports a taxpayer’s income as required under the decoupling. This confusion arose because when the decoupling was enacted, no new Tax Law §§ 612(b) additions & 612(c) subtractions were enacted. However on Forms IT-201, IT-203, IT-204 and IT-205, taxpayers are still required to list the taxable items that comprise their taxable Federal adjusted gross income (AGI). Due to the decoupling from the CARES Act, these items may not be the same for New York.

New York has solved this problem by creating a new set of additions and subtractions that are reported on a new Form IT-558, New York State Adjustments due to Decoupling from the IRC (Internal Revenue Code), as well as a new set of Form IT-558 codes (see below).

These Form IT-558 additions and subtractions are entered on the Line 19a worksheet (see below). The recomputed federal AGI from the Line 19a worksheet, Line 5 is entered on the appropriate lines on Forms IT-201, IT-203, IT-204 and IT-205.

While this solves the problem of how to report recomputed federal AGI, it does add some more complexity in the preparation of New York personal income tax returns.

 

New York State addition adjustments

Write in the applicable number(s) and the amount of each addition adjustment on Form IT-558, lines 1a through 1g. You must enter all three digits of the code.

Any amounts passed to you by a partnership, S corporation, estate or trust should be entered directly on lines 5a through 5g, using the addition adjustment code provided to you by the entity.

A-001 Coronavirus-related distributions from an eligible retirement plan

If you, as a qualified individual, received a coronavirus-related distribution from an eligible retirement plan on or after January 1, 2020, and before December 31, 2020, and for federal purposes include the taxable portion of the distribution in income ratably over a three-year period that begins in the year of distribution, then enter in the “Total amount” column the entire amount of the coronavirus-related distribution received (not just the portion included in your current-year federal AGI). Also, see subtraction adjustment S-001.

For purposes of this adjustment, the meanings of qualified individual, coronavirus-related distribution(s), and eligible retirement plan are defined in the federal CARES Act, Public Law 116-136, § 2202.

A-002 Loans from a qualified employer plan

If you received a loan from a qualified employer plan, as defined in IRC § 72(p)(4), as a qualified individual on or after March 27, 2020, and before September 23, 2020, and such loan when added to the outstanding balance of all other loans outstanding exceeds the lesser of:

• $50,000, reduced by the excess (if any) of:

1. the highest outstanding balance of loans from the plan during the one-year period ending on the day before the date on which such loan was made, over
2. the outstanding balance of loans from the plan on the date on which such loan was made, or
   
   

•     the greater of:

1. one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan, or
2. $10,000,

then enter in the “Total amount” column the entire amount of the loan received, to the extent it is not already included in federal AGI. (Also, see subtraction adjustment S-002.)

A-003 Deduction for charitable contributions

If you claimed a charitable contribution deduction on your federal return in accordance with IRC § 62(a)(22), then enter the amount of that deduction (not to exceed $300).

A-004 Exclusion for certain employer payments of student loans

If you excluded from federal gross income payments made by your employer, whether paid to you or to a lender, of principal or interest on any qualified education loan [as defined in IRC § 221(d)(1)] incurred by you for your education, then enter the amount that was excluded.

Note: Only include payments of principal or interest on qualifying education loans. Do not include other payments of educational assistance [as defined in IRC § 127(c)] that were excluded from federal gross income, such as, tuition, fees, and similar payments, books, supplies, and equipment.

A-005 Adjustment for net operating losses

If you claimed a net operating loss (NOL) deduction on your federal return, then enter the amount of such NOL deduction. [See S-004 to enter the amount of your recomputed federal NOL deduction (if any)].

IT-203 filers: Also enter in the NYS allocated amount column the amount of such NOL deduction that is derived from New York sources.

A-006 Adjustment for excess business losses

If you deducted an excess business loss, as defined in IRC § 461(l)(3), on your federal return for the current tax year, then enter such excess business loss.

Note: Any excess business loss required to be added-back due to this adjustment shall be treated as a net operating loss carryforward to the following tax year (see S-004).

A-007 Paycheck protection program loan forgiveness

If you had indebtedness that was forgiven on a loan covered under the federal Paycheck Protection  Program, Public Law 116-136, § 1106, and you excluded from federal gross income an amount per Public Law 116-136, § 1106(i), then enter such amount.

A-008 Depreciation of qualified improvement property (QIP)

If you reported a depreciation deduction related to federal QIP [as defined in IRC § 168(e)(6)] on your federal return, and the amount reported is greater than it would have been if computed using the rules in place prior to any changes made to the IRC after March 1, 2020, then enter the difference (also see S-003).

Do not report this depreciation on Form IT-398, New York State Depreciation Schedule for IRC Section 168(k) Property.

A-009 Modifications of limitations on business interest

If you claimed a business interest deduction on your federal return computed using IRC § 163(j), as modified by Public Law 116-136, § 2306, then enter the amount of excess business interest deduction claimed for federal purposes over the amount of business interest deduction allowable for New York State. The amount of business interest deduction allowable for New York State is computed in accordance with IRC § 163(j) as it existed prior to any changes made to the IRC after March 1, 2020. For example, your current-year business interest deduction is limited to 30% of the current year’s adjusted taxable income, and the election under IRC § 163(j)(10)(B) is not allowed.

The amount of any business interest not allowed as a deduction for any tax year by reason of this adjustment shall be treated as business interest paid or accrued in the succeeding tax year. For purposes of this adjustment, the meaning of adjusted taxable income is as defined in IRC § 163(j)(8). (Also see S-005.)

A-010 Deduction for charitable contributions

Estates and trusts only: If you are an estate or trust that would have been subject to a limitation on your deduction for charitable contributions prior to any amendments made to the IRC after March 1, 2020, and you claimed a charitable contribution deduction for federal purposes that was in excess of 50% of federal taxable income, then enter the amount of the excess. (Also see S-006.)

The amount of any charitable contributions not allowed as a deduction for any tax year by reason of this adjustment can be carried forward to the next tax year.

Individuals and partnerships: Do not enter code A-010.

EA-100 Partner’s and New York S corporation’s distributive share of adjustments to ordinary business income of a partnership

If you are a partner in a partnership, and the partnership reported adjustments to ordinary business income on the partnership’s Form IT-204-IP, New York Partner’s Schedule K-1, as a result of New York State decoupling from changes to the IRC after March 1, 2020, and the amount of your distributive share is a net addition, then enter such amount.

If you are a shareholder of a New York S corporation, and the S corporation reported adjustments to ordinary business income from one or more partnerships as a result of New York State decoupling from changes to the IRC after March 1, 2020, and the amount of your distributive share is a net addition, then enter your pro rata share of the amount reported on the S corporation’s Form CT-34-SH, New York S Corporation Shareholders’ Information Schedule, line 3a. (Also see ES-100.)

EA-101 Beneficiary’s distributive share of adjustments to federal taxable income of an estate or trust

If you are a beneficiary of an estate or trust, and the estate or trust reported adjustments to federal taxable income as a result of New York State decoupling from changes to the IRC after March 1, 2020, and the amount of your distributive share is a net addition, then enter such amount.

If you are a shareholder of a New York S corporation, then enter your pro rata share of the amount reported on the S corporation’s Form CT-34-SH, line 3a. (Also see ES-101.)

New York State subtraction adjustments

Write in the applicable number(s) and the amount of each subtraction adjustment on lines 10a through 10g. You must enter all three digits of the code.

Any amounts passed to you by a partnership, S corporation, estate or trust should be entered directly on lines 14a through 14g using the subtraction adjustment code provided to you by the entity. Failure to enter the subtraction adjustment code provided to you by the entity may result in the subtraction being disallowed.

S-001 Coronavirus-related distributions from an eligible retirement plan

If you received a coronavirus-related distribution from an eligible retirement plan, and the amount of the distribution will be included in your current-year federal AGI ratable over a three-

year period that begins in the year of distribution, then enter in the “Total amount” column the amount of such coronavirus-related distribution amount included in your current year federal AGI. (Also see addition adjustment A-001.)

S-002 Loans from a qualified employer plan

If in a prior tax year, you were required to add back a loan from a qualified employer plan (see A-002), and in the current tax year such loan or a portion of such loan was included in federal AGI (for example, if you defaulted on the loan), then enter in the “Total amount” column the amount included in federal AGI for the current tax year.

S-003 Depreciation of qualified improvement property (QIP)

If you reported a depreciation deduction related to federal QIP [as defined in IRC § 168(e)(6)] on your federal return, and the amount reported is less than it would have been if computed using the rules in place prior to any changes made to the IRC after March 1, 2020, then enter the difference. (Also see A-008.)

If you have QIP that is fully depreciated for federal purposes (and no depreciation deductions were reported for such QIP on your federal return), and you would have had a depreciation deduction for such QIP if it was computed using the rules in place prior to any changes made to the IRC after March 1, 2020, then enter the amount computed using the rules in place prior to any changes made to the IRC after March 1, 2020.

Do not report this depreciation on Form IT-398, New York State Depreciation Schedule for IRC Section 168(k) Property.

S-004 Adjustment for NOL

If you claimed an NOL deduction on your federal return, then enter the amount of your recomputed federal NOL deduction (if any).

Your recomputed federal NOL deduction is the amount that your federal NOL deduction would have been if computed using the rules in place prior to any changes made to the IRC after March 1, 2020. For example:

• your federal NOL deduction for losses incurred in tax year 2018 or later is limited to 80% of your 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 per addition adjustment A-006 shall be treated as a net operating loss carryforward to the following tax year.

IT-203 filers: Also enter in the NYS allocated amount column the amount of your recomputed federal NOL deduction that is derived from New York sources. (Also see S-005.)

Modifications of limitations on business interest: If, in a prior tax year, you were required to add back excess business interest for New York State purposes (see A-009), and for the current tax year you are able to utilize an amount of excess business interest carried forward that results in a greater amount of interest deduction allowed for New York State than the interest deduction you reported for federal purposes, then enter the additional amount of business interest deduction allowed for New York State.

S-006 Deduction for charitable contributions

Estates and trusts only: If in a prior tax year, you were required to add back charitable contributions for New York State purposes (see A-010), and for the current year you were able to utilize an amount of charitable contributions carried forward that results in a greater amount of charitable contributions allowed to be deducted for New York State than the charitable contributions you deducted on your federal return, then enter the additional amount of charitable contributions allowed to be deducted for New York State.

Individuals and partnerships: Do not enter code S-006.

ES-100 Partner’s and New York S corporation’s distributive share of adjustments to ordinary business income of a partnership

If you are a partner in a partnership, and the partnership reported adjustments to ordinary business income on the partnership’s Form IT-204-IP as a result of New York State decoupling from changes to the IRC after March 1, 2020, and the amount of your distributive share is a net subtraction, then enter such amount.

If you are a shareholder of a New York S corporation, and the S corporation reported adjustments to ordinary business income from one or more partnerships as a result of New York State decoupling from changes to the IRC after March 1, 2020, and the amount of your distributive share is a net addition, then enter your pro rata share of the amount reported on the S corporation’s Form CT-34-SH, line 5a. (Also see EA-100.)

The charts below are a quick reference guide showing (with an X in the column) which return each adjustment applies to.

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