Tax Type
Individual Income Tax
Description
New York does not tax its pension contributions
Topic
Returns and Payments
Taxable Income
Date Issued
10-06-2004
October 6, 2004
Re: §58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you request a refund of Virginia individual tax and interest paid by ***** (the "Taxpayers") for the taxable years ended December 31, 2000 through 2003. I apologize for the delay in the Department's response.
FACTS
The Taxpayers, a husband and wife, were residents of Virginia for the taxable years at issue. The husband, a retired state employee of New York, received pension distributions from the New York state retirement system. The Taxpayers subtracted the pension distributions from their Virginia taxable income for the 2000 through 2003 taxable years.
The Department disallowed the subtractions and adjusted the Taxpayer's Virginia taxable income, resulting in the assessment of additional income tax and interest for the taxable years at issue. Because Virginia law allows a subtraction for pension distributions only if contributions to the pension are subject to tax in another state, and New York does not tax its pension contributions, the auditor determined there is no basis to subtract the pension distributions when computing Virginia taxable income.
The Taxpayers paid the assessments and appeal the Department's adjustments to their Virginia taxable income, maintaining that the New York pension distributions may be subtracted.
DETERMINATION
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- Virginia Code § 58.1-322 C 19 provides a subtraction for:
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- any income received during the taxable year derived from a qualified pension, profit-sharing, or stock bonus plan as described by § 401 of the Internal Revenue Code, an individual retirement account or annuity established under § 408 of the Internal Revenue Code, a deferred compensation plan as defined by § 457 of the Internal Revenue Code, or any federal government retirement program, the contributions to which were deductible from the taxpayer's federal adjusted gross income, but only to the extent the contributions to such plan or program were subject to taxation under the income tax in another state.
New York Law § 612(b)(26) provides that certain contributions to the New York state retirement system or pension fund must be added to federal adjusted gross income ("FAGI") when calculating New York individual income tax. In the state of New York, employees are assigned to a tier for retirement purposes depending on the year in which they joined the retirement system. With certain exceptions, only Tier III and Tier IV employees are required to add pension contributions to FAGI. The husband states that he is a Tier II employee; therefore, he was not required to add pension contributions to federal adjusted gross income when calculating New York individual income tax. Because the contributions to the husband's retirement system were not subject to taxation under the income tax in New York, the Taxpayers were not entitled to subtract the pension distributions from their Virginia taxable income for the 2000 through 2003 taxable years.
Accordingly, the Taxpayer's request for a refund of Virginia individual income tax and interest paid for the taxable years ended December 31, 2000 through 2003 is denied. The Code of Virginia section and public document cited, as well as other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/50890B
Rulings of the Tax Commissioner