Are Traditional IRA Contributions taxable in New York State?

[Ciao4]

I am a resident of Pennsylvania and work in the state of New York (Not New York City).

I do not participate in an employer 401k or 403b.

I would like to open a Traditional IRA before April 15, 2024 to take the deduction on my 2023 Federal Taxes to reduce my tax liability.

I would like to know if Traditional IRA Contributions are taxable in New York State taxes?

If Traditional IRA Contributions are not taxable in New York where do I enter the adjustment on the IT-203 and do I also need to fill in IT-225?

Does the same tax rule apply to New York State where if I open a traditional IRA before April 15, 2024 I can apply the deduction to 2023?

Does it matter that I am a resident of Pennsylvania but work in New York?

Thank you.

[BillM223]

1. "I would like to know if Traditional IRA Contributions are taxable in New York State taxes?" - No, they are deductible from NYS income.

2. "If Traditional IRA Contributions are not taxable in New York where do I enter the adjustment on the IT-203 and do I also need to fill in IT-225?" - Just enter the IRA contribution in the federal return, and it will flow down to the NYS return. To enter an IRA contribution, go to Wages & Income->Retirement and Investments->Traditional and Roth IRA contributions. Enter the amount of the contribution and the amount that was made for 2023 between January 1, 2024 and April 15, 2024. I don't know if there are NYS screens, but if so, just answer any questions you see, and come back here if you can't answer them.

3. "Does the same tax rule apply to New York State where if I open a traditional IRA before April 15, 2024 I can apply the deduction to 2023?" - Yes.

4. "Does it matter that I am a resident of Pennsylvania but work in New York?" - No.

NOTE: be dure to stress to the IRA custodian that your IRA contribution is for 2023, since their default is to make it for 2024.

[Ciao4]

BillM223,

Thank you so much for your response.

I have the Traditional IRA listed in line 10 of the Federal 1040 (from Schedule 1, line 26).

As far as entering the Traditional IRA on the New York IT-203, I asked what line would the Traditional go on because I do 3 tax returns for my family in which 2 members work in different states with everyone still being a PA resident. Thus I would need to purchase 2 additional States.  Since those returns are relatively simple I do them by hand.

If you happened to know what line to enter the Traditional IRA it would be great.  I have the Traditional IRA on line 18 of the IT-203 in both columns Federal amount and New York State amount. Is this correct?

Lastly, as an additional question, are contributions to a ROTH IRA entered anywhere in TurboTax?

I know the Roth IRA is after tax so it should not appear anywhere in the Federal 1040 and the New York IT-203.  Is this correct? Or does it still need to be entered into TT for other reasons?

THANK YOU VERY MUCH.

[BillM223]

Yes, the IRA deduction on the 1040 should be included on line 18 (IT-203).

And, yes, Roth contributions need to be entered into TurboTax, so that TurboTax can assess whether or not the taxpayer made excess contributions. Go to Wages & Income->Retirement and Investments->Traditional and Roth IRA Contributions (this navigation is from the desktop product, so your navigation may vary).

[Opus 17]

New York says,

"Allocate to New York State any other adjustment to income that relates to wage or salary income earned partly in New York State, or to income from a business carried on both in and out of New York State, on the same basis as the income to which it relates. Some of these adjustments include IRA deduction, one-half of self-employment tax, and self-employed SEP, SIMPLE, and qualified plans."

In other words, it is a proportional adjustment.

To make an IRA contribution, you must have compensation from working.  Compensation includes W-2 wages, self-employment income, and a few other things.  If your only compensation is from your NY job, then you can include your entire IRA contribution as a New York adjustment.  However, if your NY job is 80% of your compensation, and 20% of your compensation is from a part-time job or side hustle in PA, then only 80% of your IRA contributions would be allowed as a NY adjustment.  

[Opus 17]

"If you happened to know what line to enter the Traditional IRA it would be great.  I have the Traditional IRA on line 18 of the IT-203 in both columns Federal amount and New York State amount. Is this correct?"

Line 18 is for all the adjustments to income from your federal schedule I, part 2 (line 26).  An IRA is the most common, second most common is probably an HSA (health savings account) or alimony.  There are few very esoteric adjustments too, check your federal return.  The adjustments you enter in NY are proportional to the sources of your income, as I explained in my other answer. 

"I know the Roth IRA is after tax so it should not appear anywhere in the Federal 1040 and the New York IT-203.  Is this correct? Or does it still need to be entered into TT for other reasons?"

TT asks for your Roth contributions so it can keep track for you in the future (if you use TT year over year) and to calculate and warn you if you have an excess contribution (because you go over the limit for your income level and filing status). It is recommended to report them but not required.

[Ciao4]

All compensation was earned in New York .

Therefore the entire IRA contribution should be reported on IT-203 Line 18.

The question is the entire IRA contribution reported in BOTH the Federal Amount column AND the New York State column of Line 18?

Thank you.

[Opus 17]

@Ciao4 

Yes, that’s how you do it.  The federal column must match your federal return, and the New York column is the New York allocation, which is calculated proportionally.  

[Ciao4]

Just to verify in general, the Federal column on the New York IT-203 should match the New Column only on income earned in New York - correct?

You would not include interest earned in another state in either the Federal column or the New York column of the IT-203.

Later in the form you need to calculate the percent of New York income to your total income.

Since you can only contributed to an IRA if you have compensation and since all of my compensation is from New York, I can take the deduction in New York, otherwise I would have to apportion the amount of the deduction. Correct?

[Opus 17]

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@Ciao4 wrote:

Just to verify in general, the Federal column on the New York IT-203 should match the New Column only on income earned in New York - correct?

You would not include interest earned in another state in either the Federal column or the New York column of the IT-203.

Later in the form you need to calculate the percent of New York income to your total income.

Since you can only contributed to an IRA if you have compensation and since all of my compensation is from New York, I can take the deduction in New York, otherwise I would have to apportion the amount of the deduction. Correct?

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The federal column must match your federal tax return.  It lists all your income, and all your adjustments that were on your federal return (IRS 1040 and attachments).  The New York column shows the portion of the Federal income and adjustments that you allocate to New York. 

Yes, you include interest income earned in other states in the federal column.  All your income means all your income.  

You allocate income and adjustments to New York based on the IT-203 instructions.  Generally for income, New York source income is income earned or paid while living or working in NY state.  If you have a W-2 job in New York for $50,000 of wages and a part-time job in PA for $10,000, then line 1 of form IT-203 would show $60,000 under federal and $50,000 under state.  If you sold a home in PA, the capital gains would go on line 7 under the federal column and the NY amount would be zero.  Interest is taxed where you live, not where the bank is located.

Your adjustments to income are on your federal return schedule 1, lines 11-26.  That includes the IRA deduction, alimony, student loan interest, health savings account, legal fees for discrimination cases,, and a few other things.  But all that has to fit on line 18 of the IT-203.  And you consider each item separately, and you need to include an explanation on the IT-203.

Let's say your only adjustment is $6500 for an IRA.  And since IRAs are funded from working, if your only work in is NY, you can allocate the whole $6500 to New York.  

https://www.tax.ny.gov/pdf/current_forms/it/it203_fill_in.pdf

https://www.tax.ny.gov/forms/current-forms/it/it203i.htm

https://www.irs.gov/pub/irs-prior/f1040s1--2021.pdf