Deducting CT paid family leave as income tax paid to another state

[abramfalk]

I live in NY with wife, and wife works in CT. We file a nonresident CT return and then a resident NY return. For the resident NY return, we normally take the income tax paid to CT as a credit. However, since there is a new paid family leave payroll tax in CT, I would think that this payroll tax should be deducted as well. That is, the total credit for taxes paid to CT should equal the CT income tax + the CTPFL payroll tax. The IRS has previously ruled the PFL payroll taxes are income taxes. However, Turbotax does not seem to know about this at all. Turbotax wants to just have my NY credit for taxes paid to CT be equal to my CT income tax. Turbotax lets you override this, but I find it odd that Turbotax does not know about the CTPFL, since this must be a common situation.

Has anybody else encountered this issue? Is Turbotax just not caught up to how to handle CTPFL, or am I misinterpreting that CTPFL premiums can be treated as an income tax paid to another state?

[KrisD15]

CTPFL is reported in Box 14 on a W-2 which is where your payroll department can enter information they find helpful, but not necessarily tax related. 

If the CTPFL tax is listed there, be sure to select "Other deductible state or local tax" from the Category drop-down list on the W-2 input screen and the tax will carry to Schedule A. 

Of course the SALT (State and Local tax) limit of 10,000 will still apply. 

[abramfalk]

Thank you for the reply, but I don't believe that you answered my question. My wife and I live in NY, and she works in CT, and I work in NY. The issue is the question of whether, when calcuating my tax credit for taxes paid to another state on my NY return, I can deduct my CTPFL paid by my wife to CT. The IRS has ruled that paid family leave taxes are income taxes, even though they are payroll taxes. Therefore, I believe that when calculating my credit on my NY return for taxes paid to another state, I should add the CTPFL payroll taxes to my CT income taxes. However, Turbotax does not seem to suggest doing this. Is Turbotax missing that CTPFL ought to be credited on another state's return?

[AmyC]

NY considers the money paid for family leave as a premium for insurance. NY does not consider it as a tax on income.  PFL is not mentioned in the NY instructions or credit.

CT considers the PFL cost as premiums paid since it is an insurance policy.

Insurance premiums do not count as tax paid and would not be included.

Reference: New York State Paid Family Leave - Tax.NY.gov & BY-LAWS OF CT PAID FAMILY AND MEDICAL LEAVE 

[jay6]

I am in the same situation. Since NY residents working in CT cannot get CT paid family leave benefit, are NY residents really required to pay this tax? Is there a way to get refund from CT?

[abramfalk1]

Jay6, you are wrong about that. A NY resident working in CT *can* get paid the CT PFL benefit. I know this for sure because my wife received it last year. Thus, NY residents cannot be exempt from the CT PFL premiums.

What I was wondering was whether the premiums can be taken as a income tax credit for taxes paid to another state on my NY return. We have one opinion in this thread that they cannot be, because it is an insurance benefit. However, I'm not sure that I agree. As the CT Paid Leave website states, "employee contributions to Paid Family and Medical Leave programs in other states as state income taxes for federal income tax purposes.  As such, the contributions are deductible on federal income tax returns as state income taxes."

https://ctpaidleave.org/s/article/Are-deductions-from-employees-paid-to-the-CT-Paid-Leave-Authority-...

This text doesn't mention anything about their deductibility on other state tax returns, but in this context, it seems reasonable to me that they should be.

It would be interesting to hear other opinions about this.

[Cynthiad66]

Title

Are deductions from employees paid to the CT Paid Leave Authority tax deductible from federal and state taxes?

Detail

The Internal Revenue Service has categorized employee contributions to Paid Family and Medical Leave programs in other states as state income taxes for federal income tax purposes.  As such, the contributions are deductible on federal income tax returns as state income taxes for those taxpayers that elect to itemize their deductions (subject to the $10,000 SALT deduction cap). Under CT tax law, state income taxes are not deductible on personal state tax returns.

URL Name

Are-deductions-from-employees-paid-to-the-CT-Paid-Leave-Authority-tax-deductible-from-federal-and-state-taxes

Link to CT Paid Family Leave

@jay6

[abramfalk1]

Thank you for the reply Cynthiad66, but you are not quite answering the question. The question is not whether CT PFL are deductible on federal IRS returns, but whether they can be taken as a tax credit on a NY state return, as a credit for taxes paid to another state, for a person who lives in NY and works in CT.

[DaveF1006]

in researching this subject, PFL income is taxable in both the state of CT and New York.  Armed with this knowledge, you would report this benefit along with the wages you earned in CT and will be taxed on this combined income in the State of Connecticut as non-resident income.

The tax paid by you from these two sources of income will be used as a tax credit in NY so you will not be double-taxed by this income.  

Report your Connecticut non-resident return first before filing the NY resident return so the taxes paid in Connecticut  flows seamlessly to your New york resident return as a tax credit for taxes paid in another state.

@abramfalk1 

[abramfalk1]

Thank you for the reply @DaveF1006 , but you also did not answer the question. The question is not how to handle PFL income, but how to handle the PFL premiums. Specifically, can I call the CT PFL premiums that my wife pays as a type of CT income tax, and credit that payroll tax to my NY returns as taxes paid to another state?

I believe the answer is yes, but I have not been able to confirm this.

[AmyC]

NY considers the money paid for family leave as a premium for insurance. NY does not consider it as a tax on income.  PFL is not mentioned in the NY instructions or credit.

CT considers the PFL cost as premiums paid since it is an insurance policy.

Insurance premiums do not count as tax paid and would not be included.

Reference: 

New York State Paid Family Leave - Tax.NY.gov 

BY-LAWS OF CT PAID FAMILYAND MEDICAL LEAVE