New York State Foreign Income Tax Credit

New York State Foreign Income Tax Credit
New York residents can e-file state income tax returns.

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.

Residency Classifications

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.

IRS Test

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.