Grants a personal income tax deduction to taxpayers with a terminal illness who withdraw up to $20,000 from their 401(k) account on a hardship basis.
TITLE OF BILL: An act to amend the tax law, in relation to establishing a personal income tax deduction for certain withdrawals from a 401(k) plan by a taxpayer suffering from a terminal illness
PURPOSE OR GENERAL IDEA OF BILL: This bill grants a personal income tax deduction to taxpayers with a terminal illness who withdraw up to 20,000 from their 401(k) account on a hardship basis.
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 adds a new paragraph 42 to subsection c of section 612 of the tax law to provide that hardship distributions from a retirement account established pursuant to section 401 (K) of the internal revenue code shall be exempt from New York state tax, to the extent includable in federal adjusted gross income, up to a maximum of $20,000. The exemption shall only be available to those who have a medically terminable condition which can be expected to result in death within a period of not more than 12 months.
JUSTIFICATION: Federal law governs the granting of 401(k) hardship withdrawals. This bill will assist those who are facing a life ending crisis who have proven their hardship case for a withdraw of 401 (k) funds on a hardship basis in accordance with federal regulations applicable to such plans. It is unfair to subject terminally ill individuals to state income taxes when they have proven it necessary to have access to these funds. These funds are often needed to pay medical bills and other expenses which accrue when a person faces the challenges associated with a terminal illness. The situation can be magnified when the individual is no longer able to continue in an employment situation. It is only equitable that New York forgoes taxation on monies that an individual has earned which become necessary for he or she to confront medical and personal challenges.
PRIOR LEGISLATIVE HISTORY: New Bill
FISCAL IMPLICATIONS: Undetermined.
EFFECTIVE DATE: This act shall take effect immediately and shall apply to all subsequent taxable years.
STATE OF NEW YORK ________________________________________________________________________ 7333 IN SENATE May 13, 2014 ___________Introduced by Sen. YOUNG -- read twice and ordered printed, and when printed to be committed to the Committee on Investigations and Govern- ment Operations AN ACT to amend the tax law, in relation to establishing a personal income tax deduction for certain withdrawals from a 401(k) plan by a taxpayer suffering from a terminal illness THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subsection (c) of section 612 of the tax law is amended by adding a new paragraph 42 to read as follows: (42) HARDSHIP DISTRIBUTIONS FROM A RETIREMENT ACCOUNT ESTABLISHED PURSUANT TO SECTION 401(K) OF THE INTERNAL REVENUE CODE TO THE EXTENT INCLUDABLE IN FEDERAL ADJUSTED GROSS INCOME, PROVIDED, HOWEVER, THAT THE EXCLUSION PROVIDED FOR IN THIS PARAGRAPH SHALL NOT EXCEED TWENTY THOU- SAND DOLLARS; PROVIDED, FURTHER, THAT SUCH EXCLUSION SHALL ONLY BE AVAILABLE BY REASON OF A MEDICALLY DETERMINABLE PHYSICAL OR MENTAL IMPAIRMENT OF AN INDIVIDUAL TAXPAYER WHICH CAN BE EXPECTED TO RESULT IN DEATH WITHIN A PERIOD OF NOT MORE THAN TWELVE MONTHS. S 2. This act shall take effect immediately and shall apply to the tax year in which it takes effect and all subsequent tax years.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD14948-03-4