Occupational Taxes , Where do I report ?

[MargaretL · Accepted solution]

The occupational tax is deducted as job-related expenses (I'm assuming you are an employee).

Job-related expenses are located in:

1. Federal Taxes
2. Deductions & Credits (you may have to select See all tax breaks)
3. Employment Expenses
4. Job-Related Expenses

Note: Per IRS Pub. 17 "You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality.  If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you can't claim them as a deduction for taxes elsewhere on your return."

[Nicole9]

I am a NYC employee who is moving out of NYC and will be subject to the Section 1127 waiver.  (Essentially it the exact amount you would have paid as a City resident for NYC taxes, but instead, the City imposes it on you if you choose to live outside of the 5 boroughs and calls it a "Fee" instead of a "Tax.")  I was looking for the section of the Tax Code that allowed this "Fee" to be deducted from my taxes and happened upon this response.

Unfortunately, as a result of the Tax Cuts and Job Act 2017, this "Fee" can no longer be deducted as a Miscellaneous Expense.  Per IRS Publication 17 (2018) the deduction for miscellaneous itemized deductions suspended. "For tax years beginning after 2017, the deduction for job-related or other miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income floor is suspended. Armed Forces reservists, qualified performing artists, and fee-based state or local government officials can continue to claim eligible business expenses as adjustments in determining adjusted gross income. Employees with impairment-related work expenses can continue to claim eligible impairment-related work expenses as itemized deductions."  In case you are wondering, fee-based state or local government officials does not cover most City employees such as cops, municipal workers, etc.  It only covers officials who receive fee-based payments from the City, not regular wages.  https://www.irs.gov/pub/irs-pdf/p17.pdf

This also no longer allows for this "Fee" to qualify as an Occupational Tax as some other forums have stated.  Prior to the TCJA 2017, if you were an employee, you could claim occupational taxes only as a miscellaneous deduction subject to the 2% limit.  Now that the TCJA 2017 no longer allows for miscellaneous deductions for anyone other than the very narrow group of 4 listed in Publication 17 (2018), the occupational tax deduction doesn't seem to be applicable either.

In summation, with the passing of the TCJA 2017, it seems that those of us who currently pay the Section 1127 "Fee" for the privilege of being employed by NYC but who live outside of its 5 boroughs, no longer have a way to deduct this "Fee."