New York state residents need not fear double taxation when they live and work abroad. For people who maintain a home base in New York, the state has residency rules that determine their tax classification. Provisions in the tax regulations give residents credit when they report income tax that they have paid to foreign governments. The benefit for New York residents is a guarantee that they will not be headed to prison for income tax evasion after they clear immigration and customs when they return home.
New York Residency
The state of New York counts its residents by examining the duration of their time at their permanent address or domicile. It also recognizes that students leave temporarily to pursue educational studies. Businesses transfer their employees to foreign posts. Other residents move out of the state when the military deploys them overseas or leave temporarily for any number of reasons. When you maintain a domicile in New York, you are still a resident of the state, even when you have a foreign mailing address.
When you meet the residency tests, the state of New York requires that you submit your state income taxes to its Division of Finance and Taxation. The form that you use to file your New York State tax depends on the length of your physical absence from the state. New York classifies you as a part-year resident or a resident who is temporarily absent. The residency classification that applies to you will not affect your right to claim foreign income tax that you paid. To deduct foreign income tax residents must use form IT-201, the long form. Part-year residents use form IT-203 to report foreign income tax paid while maintaining residence in New York State.
For the state of New York, the main consideration for people who have paid foreign income tax is the type of form you filed with your federal income tax. To be eligible for New York's foreign income tax credit, you must have reported the tax that you paid to the Internal Revenue Service. In order to claim foreign income tax on a federal return, you must itemize deductions, using Schedule A. The IRS 1040 long form is the only form with which you can submit itemized personal deductions.
Credits for Foreign Taxes
Despite the fact that the foreign income tax paid is a tax, you cannot deduct it from the taxes that you owe the state of New York. The New York state foreign income tax credit is an itemized deduction that decreases your adjusted gross income. Since you subtract it from income you received, it effectively reduces your total New York State tax liability.