NYS Income Tax Credits: Part 1
Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
Most of us concentrate on lowering our federal taxes, but most states, including New York, have a number of important credits you don’t want to miss either. Here are a few of the New York credits:
Child And Dependent Care Credit
Even if you didn’t claim the federal “child and dependent care credit,” as long as you qualified for it and were a full-year resident, New York State allows you to claim this fully refundable credit. It is based on your New York State adjusted gross income, and varies from 20 percent of the federal credit up to 110 percent. Not a full-year resident? It’s also partially refundable if you were a part-year resident.
New York State seems to target this credit for audit, so make sure you keep your paid receipts. Proof of payment includes cancelled checks and cash receipts given to you at the time you paid. Proof does not include your word, a statement from the provider, or receipts prepared when you find out you are being audited.
College Tuition Credit
If you, your spouse, or a dependent claimed on your tax return, are an undergraduate student at a qualified institution, pay tuition (even by a loan), were a full-year New York State resident, you are entitled to the higher of a refundable credit of up to $400 per student, or an itemized deduction of up to $10,000 for each student.
Tuition expense does not include room and board, or books and equipment, even if required by the school. If you have a NYS 529 plan, you get a double benefit. First by contributing to the 529 plan you receive a deduction, and second by claiming the credit (with the money you withdraw from the 529 plan and use for the tuition expenses).
Paying for college and don’t have a NYS 529 plan? Here’s a sweet gift from your New York State Legislature: Deposit up to $5,000 ($10,000 if married) into the plan today, and withdraw the funds as soon as the check clears. You will receive a tax deduction for your contribution. In – Out. Can’t be easier. Can be worth over $500 in pocket ($1,000 if married).
Not a New York State resident? You cannot claim the $400 credit, but you can add the tuition deduction as part of your itemized deductions.
Earned Income Credit (EIC)
Are you a custodial parent? If so, and you claimed the federal EIC, New York State gives you their version, which amounts to 30 percent of the federal amount, reduced by the household credit. This credit too is fully refundable if you were a full-year resident, and partially refundable if you were a part-year resident.
Again, your request will probably be questioned, so make sure you have proof of income. In this area, the state focuses on self-employed individuals. You’ll need proof of daily income and expenses, like cash register receipts, bank statements, deposit slips, cancelled checks, invoices and more. Again, no receipts — no deduction; your sworn statement is not enough.
Empire State Child Credit
This is another credit you are entitled to receive, even if you are eligible, but did not claim it on your federal return. Again, you, or your spouse, need to be a full-year resident, have a qualifying child, and be within income limitations.
One quirk: The definition of a qualifying child is one who is at least four-years-old on December 31.
Have a good week.
Quip: The fiscal cliff deal (aka the American Taxpayer Relief Act of 2012) created what may be the world’s tiniest tax bracket. Under the new law, singles face a rate of 35 percent if their taxable income falls between $398,350 and $400,000. The bracket covers a grand total of $1,650.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.
