Now that tax season is here, you may be wondering how the federal Tax Cuts and Jobs Act (TCJA), otherwise known as tax reform, will show up on your 2018 tax return. While the changes may be significant depending on your unique situation, if you are a freelancer in New York you may actually see a reprieve from tax reform’s impact on your state tax return, due to the fact that New York State is opting not to follow all of the provisions of the federal TCJA statutes.
Here is a summary of how New York State’s tax treatment of certain income and deductions will now differ from the new federal tax rules for tax years 2018 and beyond:
To itemize deductions or not is up to you
Freelancers filing a New York State tax return may choose to itemize their deductions for New York State purposes for tax years 2018 and after, regardless of whether they itemized them on their federal income tax return.
New York State is not following several of the federal itemized deduction changes made by the TCJA for tax years 2018 and after. This means that you may be able to claim some deductions on your New York personal income tax return that are no longer available on your federal return. For example, deductions may be available for the following:
State and local real estate taxes paid, including amounts over the new $10,000 federal limit
Casualty and theft losses beyond those incurred outside a federally declared disaster area as the TCJA states
Unreimbursed employee business expenses
Some miscellaneous deductions, such as tax preparation fees, investment expenses, and safe deposit box fees — which are no longer allowed federally.
Alimony or separate maintenance payments are allowed
New York State is not following changes in the TCJA in regard to the treatment of alimony or separate maintenance payments made under an alimony or separation agreement that was executed or modified after December 31, 2018.
It is required by New York State Law for taxpayers to calculate their New York adjusted gross income (NYAGI) by:
Subtracting from your federal adjusted gross income (FAGI) any applicable alimony or separate maintenance payments you made in the tax year, and
Adding to FAGI any applicable alimony or separate maintenance payments you received in the tax year.
Qualified moving expenses may still be excluded from gross income.
New York State is also not following the TCJA laws when it comes to the deduction for moving expenses and moving expense reimbursement, and their exclusion from gross income (wages) for tax years 2018-2025. New York State taxpayers can continue to deduct qualified moving expenses and moving expense reimbursement from their NYAGI.
When calculating your NYAGI, you must subtract from FAGI:
Any applicable qualified moving expenses reimbursement you received in the tax year; and
Any qualified moving expenses you paid during the tax year.
The Empire State child tax credit rules have changed
Independent of the TCJA, in New York State, you may no longer use the amount of your current tax year’s federal child tax credit or additional child tax credit to compute your Empire State child credit. The Empire State child tax credit is now based on a taxpayer’s 2017 federal credit amounts and income.
There's no change to qualified withdrawals for 529 college savings accounts
Under the TCJA, changes were made to which types of withdrawals are eligible from a Qualified Tuition Program (QTP) account, commonly referred to as a 529 Plan. Under tax reform, payments for kindergarten through 12th grade school tuition at most elementary (private or public) schools are considered qualified withdrawals. However under the New York 529 college savings account program, these tuition payments are disallowed.
In New York State, a withdrawal from a 529 college savings account must be used for the higher education of a designated beneficiary at public or private, non-profit, or proprietary post-secondary educational institutions, in or outside New York State.
What about non-New Yorkers?
New York is not the only state that is opting not to follow every provision of the TCJA, so if you are a freelancer with a tax nexus in a state other than New York, it is wise to check the specific tax statutes for the states you are filing in.
A tax professional with experience in the states where you are filing can also be a helpful resource to ensure that you are following both the adopted changes under tax reform law and maximizing any tax rules that may benefit you at the state level.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.