Gov. Andrew Cuomo approved the New York State Fiscal Year 2014-2015 Budget this past spring. Included in the budget was legislation exempting the proceeds from Length of Service Awards Programs (LOSAP) from New York State personal income taxes. This has been a priority for FASNY and its membership for quite some time.
Last fall, after legislation passed both houses in Albany, the governor vetoed the bill – at the time expressing his desire for the issue to be part of the budget negotiation process. Thanks to the hard work by the DKC Government Affairs team, this critical piece of legislation was finally included in the State budget.
Credit is also due to FASNY Director Robert H. Ottaviano Jr., who drafted the original change and advocated it to be included in the FASNY Legislative Agenda, along with Kirby Hannan and Peter O’Connell, who tweaked the bill, Legislative Chair Robin Schott and Vice Chair Robert Knight for their support and, most importantly, the more than 700 FASNY members who responded to our call to action and sent 1,400 individual letters to their elected representatives urging their support. This was a comprehensive effort which illustrated that when the members of the fire service come together and advocate for a cause, we can have a real impact.
Since the legislation was included in the budget, there have been some questions regarding the specifics of the taxexemption. Director Ottaviano has offered some tips for the volunteer fire service on how to ensure that you are correctly taking advantage of the tax exemption.
First and foremost, ask your plan administrator about the new tax exemption. There are different plans utilized across the state, so it is critical that your administrator is aware of the new change.
Lump sum payments are not exempt. If you take a LOSAP payment as a lump sum, you will not receive the exemption.
The exemption applies to both defined contribution and defined benefit plans where the distributions are made on a periodic basis.
You must be at least 59 ½ years old for the LOSAP payments to be exempt from New York State tax. Director Ottaviano also recommends that you discuss this development with your accountant as it is extremely important that volunteer firefighters or ambulance workers report the
LOSAP payments correctly on their tax forms in order to properly take advantage of the benefit. LOSAP is currently being report correctly on three different
IRS information tax forms, 1099-R, 1099-MISC and W-2, all depending on how the plan was structured.
This currently creates confusion for volunteer firefighters since they are not aware of where the amounts are to be reported on their federal tax returns. The correct recording on
Form 1040 for the aforementioned informational returns is as follows:
- 1099-R, this is reported on line 16, Pension and Annuities.
- 1099-MISC Box 3, this is reported on line 21, Other Income.
- W-2 box 11, which is reported on line 7, Wages.
New York State
For tax years 2013 and prior in New York State, individuals over the age of 59 ½ receiving periodic payments are allowed to subtract those payments from their federal income to arrive at their New York State Taxable income if the total amount of their pensions and annuities from non-governmental sources was $20,000 and under. The correct recording on Form IT-201 should be a subtracting the LOSAP payments on line 31 listed as “Service Award Payment TSB-M-03(5)I,” unless a 1099-R was received and the amount on line 29 would be less $20,000 including the LOSAP amount reported on a 1099-R, then the amount would be deducted on line 29 instead of line 31.
For tax years 2014 and subsequent, individuals over the age of 59 ½ receiving periodic payments are allowed to subtract those payments from their federal income to arrive at their New York State taxable income without any regard to the total amount of their pensions and annuities from non-governmental sources.
The correct recording on Form IT-201 should be a subtracting the LOSAP payments on line 31. It cannot be stressed enough that FASNY members discuss this change with their individual plan administrators and where at all possible, their accountants.
This story appears in the July/August edition of The Volunteer Firefighter magazine, just one of many benefits of FASNY membership.