topic NYC school tax credit - rate reduction amount in Get your taxes done using TurboTax

NYC school tax credit - rate reduction amount

brian-perrigino — Wed, 03 Mar 2021 20:46:57 GMT

I am pretty sure I have this correct, but am posting to verify my understanding and also to share. This relates to NYC school tax credit (rate reduction amount) - line 69A. This relates to a couple each earning ~$300K each (it's not me!). If taxes are done married filing jointly, they exceed the $500K threshold and the credit it $0. If they file married filing separately, the combined credit is over $1200. Does that sound about right? TurboTax did the calculations -- I did not need to provide anything special other than the interview question. I actually did the taxes both jointly and separately and compared the two and identified the difference.

Re: NYC school tax credit - rate reduction amount

BillM223 — Thu, 04 Mar 2021 04:08:02 GMT

No, that doesn't sound right.

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Re: NYC school tax credit - rate reduction amount

brian-perrigino — Thu, 04 Mar 2021 18:45:57 GMT

@BillM223 Hi Bill, thanks for your reply & offer. Before we go that route, I did a bit more research.

The instructions are below.

One return in question has taxable income of 250,773. The calculation of ((250,773-12000) * .00228 ) + 21 = $565 which is what TurboTax calculated.

The other has taxable income of 317,662. ((317,662-12000) * .00228) + 21) = $718 which is also what TurboTax calculated.
It seems very strange that the credit goes away for married/jointly with taxable income > $500K, but I think this is correct, no? Am I missing something?

I am doing this return for my daughter & her husband, and have no experience with NYC credits, and I've also never done married filing separately so I very much appreciate your support & patience.

UPDATE: I prepared a "fake" tax return with a fake w2 and nothing else, and it did a similar calculation. Taxable Income was $292,000. The credit was $659 which is what I expected based on the formula.

Brian

https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf

Calculation of NYC school tax credit (rate reduction amount) for single and married filing separately
If city taxable income is: over but not over	The credit is:
$ 0 $ 12,000 12,000 500,000	.171% of taxable income $ 21 plus .228% of the excess over $12,000

Re: NYC school tax credit - rate reduction amount

BillM223 — Thu, 04 Mar 2021 21:14:18 GMT

It turns out that this apparent bizarre calculation is correct. It is due to New York's non-linear way of looking at the NYC School Tax Credit (line 69, IT-201), and the - NYC school tax credit (rate reduction amount) (line 69a, IT-201).

It is easier to consider the two credits as totally separate, for two separate, inconsistent circumstances.

The NYC School Tax Credit:

If you are a New York City resident or part-year resident and marked the No box at item C on the front of Form IT-201 indicating that you cannot be claimed as a dependent on another taxpayer’s federal return and you are filing status [anything other than MFJ] (and your income (see below) is $250,000 or less), determine your credit using Table 1 below if you were a full-year resident or Table 2 below if you were a part-year city resident. See IT-201 Instructions.

Clearly, the income is more than $250,000, so no credit allowed.

However, the rate reduction amount credit is calculated quite differently:

Calculation of NYC school tax credit (rate reduction amount) for single and married filing separately

If the income is between $ 0 and $ 12,000, then credit is 0.171% of taxable income

If the income is between $12,000 and 500,000 then the credit is $ 21 plus .228% of the excess over $12,000

Clearly, the rate reduction amount credit is available up to $500,000, which both spouses are eligible for.

Basically, the school tax credit cuts off at $250,000 while the rate reduction amount credit cuts off at $500,000.

Re: NYC school tax credit - rate reduction amount

brian-perrigino — Thu, 04 Mar 2021 21:50:18 GMT

Thank you again for confirming. I played a bit more ... if I get taxable income up to exactly $500,000, the credit is $1,134. If I make it $500,001, the credit is $0. This makes no sense to me, but I'm not complaining :-). Clearly, married filing separately is very advantageous if you live in NYC and combined taxable income is >$500K and both incomes are under $500K. (As an FYI ... the difference in federal was negligible, but MFS was a little less).

I have one open question remaining and that is how to record dividends from a joint account. I got an answer but wasn't quite positive what it said so I sent a followup.

It's this one if you're up to one more question. :-). I am not sure if these questions get assigned so no problem if you can't answer it. Again, thank you so much!

https://ttlc.intuit.com/community/taxes/discussion/re-question-s-on-married-filing-separately/01/2024031/highlight/false#M729513

Brian

Re: NYC school tax credit - rate reduction amount

BillM223 — Fri, 05 Mar 2021 05:03:13 GMT

Don't worry about the nominee reference; that is the correct but complicated way to handle this.

Instead, go to the 1099-INT section. You will note that you are asked to check the owner of the interest, and to enter the Payer and the amount.

Do this twice, once indicating half the interest and that it belongs to one person, then repeat and enter half the interest and indicate that it belongs to the other person.

So many people in fact don't get a 1099-INT that you don't need to report the form exactly as is. Be sure to make a note to yourself on what you did and stick it in your tax file in the extremely unlikely case that anyone ever asks.

Re: NYC school tax credit - rate reduction amount

brian-perrigino — Fri, 05 Mar 2021 22:15:00 GMT

Thanks again