Full IRA Income to be Used for Tax Calculation of NY Part-year Residents

October 23, 2006 (PLANSPONSOR.com) - New York's Division of Tax Appeals has recently decided that the full amount of an individual retirement account (IRA) distribution is to be used in the calculation of state income tax for part-year residents.

The New York Law Journal reports that an administrative law judge (ALJ) upheld a 1992 state Court of Appeals decision allowing the use of non-state source pension income in calculating the tax rate on state source income. According to New York tax law, tax on income from New York sources for part-year residents is calculated by taking the tax for the full year minus credits and multiplied by a rate equal to the New York source income divided by the total adjusted gross income.

The case before the ALJ hinged on a challenge to the state’s calculation based on a 1996 federal statute which said, “[n]o State may impose tax on any retirement income of an individual who is not a resident or domiciliary of such State (as determined under the laws of such State),” according to the New York Law Journal. The couple bringing the case argued the state improperly calculated their taxes by using pension income received while they were non-residents.

The 1992 appellate court decision rejected a similar argument, and the ALJ said that, even though that case was decided four years prior to the federal statute, it prevailed.

The couple moved to New York in 2000 and cashed in an IRA for money to pay for their new home. The couple claimed part of the distribution based on the date they moved to New York. However, the state recalculated their claim based on the entire distribution.