BILL NUMBER: S7231

SPONSOR: FELDER
 
TITLE OF BILL:

An act to amend the tax law, in relation to providing a deduction for
repayment of amounts reported in a taxpayer's income in a previous tax
year

 
PURPOSE:

To ensure that taxpayers that return overpaid.employment benefits can
recoup any taxes paid on funds returned.

 
SUMMARY OF PROVISIONS:

Section 1 amends section 612 of the tax law to add a new subtraction
modification, effective for tax year 2021 and after, for taxpayers that
repaid overpayments of taxable government benefits.

 
              

EXISTING LAW:

Under current law, under certain circumstances taxpayers who are
required to repay income they received in a prior tax year may be able
to recoup the tax they initially paid on that income. If the amount of
income to be repaid is more than $3,000, the taxpayer can claim federal
and NY "claim of right" tax credits to recoup the taxes paid. If the
amount of income to be repaid is $3,000 or less and the taxpayer item-
izes deductions, the taxpayer may be able to claim a deduction equal to
a portion of the taxes paid. However, taxpayers who take the standard
deduction have no means to recoup any of the taxes paid on that repaid
income.

 
JUSTIFICATION:

This legislation adds a new subtraction modification, effective for tax
year 2021 and after, for taxpayers that repaid overpayments of taxable
government benefits. The subtraction would be equal to the amount repaid
in the tax year and would preclude a claim of right credit for those
overpayments.

During the COVID-19 public health emergency, the Department of Labor has
paid over $86 billion in unemployment claims to 4 7 million claimants,
including state unemployment insurance benefits and federal benefits
pursuant to the CARES Act. The Department has issued overpayment notices
to approximately 166,000 claimants who were inadvertently paid excess
federal benefits due to no fault of their own. Although state law in
certain cases prohibits the Department of Labor from collecting overpay-
ments of state law unemployment benefits when the overpayment was not
due to any fault of the claimant, the CARES Act requires states to make
efforts to collect overpayments of federal benefits. Many of these
claimants will qualify for a waiver due to their limited household
income. However, those who do not qualify for a waiver will be required
to pay back the overpayment, and they should not be liable for taxes
paid on funds they returned. This legislation ensures that any taxes
paid on funds returned can be recouped by the recipient.

 
LEGISLATIVE HISTORY:

New Bill

 
BUDGET IMPLICATIONS:

There are no financial plan implications for this legislation.

 
EFFECTIVE DATE:
Immediately