Are wages paid to an injured firefighter who was reassigned to desk duty (rather than retired) subject to New York State personal income tax and withholding?

Plain-English summary

Gerard Altieri, a New York fireman, was injured in a job-related accident and received a letter of disability from his physician. Rather than retiring, he was reassigned to desk duty and continued to receive a federal Form W-2 reporting his wages. He asked the Department whether the income he now receives while on desk duty is subject to New York State personal income tax and to employer withholding.

The Department explained that a New York resident's taxable income starts with federal adjusted gross income, adjusted by the modifications in Tax Law § 612. One of those modifications, § 612(c)(3-b)(i), lets a taxpayer subtract certain disability income that would have been excluded from federal gross income under former Internal Revenue Code § 105(d) - but only if the taxpayer is under 65, retired on disability, and permanently and totally disabled (unable to engage in any substantial gainful activity because of an impairment expected to last at least twelve months or result in death).

Because Petitioner was reassigned to desk duty rather than retired, and because he was not permanently and totally disabled, the Department concluded he did not meet the requirements for the § 612(c)(3-b)(i) subtraction. As a result, his desk-duty wages remain part of his New York adjusted gross income and are fully subject to New York State personal income tax under § 601 and § 611(a), and his employer must withhold tax from those wages under Tax Law § 671(a)(1).

What this means for you

Injured public-safety employees reassigned to light or desk duty

If you're injured on the job but your employer reassigns you to desk or light duty rather than retiring you on disability, the wages you receive for that work are ordinary taxable wages - not excludable disability income - unless you also meet the strict "permanently and totally disabled" and "retired on disability" tests in Tax Law § 612(c)(3-b)(i).

Employers and payroll administrators

Continuing to issue a W-2 to an employee on light or desk duty is a signal that the wages are still ordinary compensation. Employers must keep withholding tax from those wages under Tax Law § 671(a)(1) unless the employee has actually retired on disability and qualifies for the disability income subtraction.

Common questions

Q: Why didn't Petitioner's disability qualify him for a tax subtraction?
A: Tax Law § 612(c)(3-b)(i) requires the taxpayer to be retired on disability and permanently and totally disabled. Because Petitioner was reassigned to desk duty rather than retired, and was not permanently and totally disabled, he did not meet either requirement.

Q: What does "permanently and totally disabled" mean under this rule?
A: Per former IRC § 105(d), it means being unable to engage in any substantial gainful activity because of a medically determinable impairment expected to result in death or to last at least twelve continuous months.

Q: Are the wages Petitioner receives while on desk duty subject to New York withholding?
A: Yes. Because the wages are includable in his New York adjusted gross income, Tax Law § 671(a)(1) requires his employer to withhold New York State tax from them.

Q: Would the answer change if Petitioner later retired on disability?
A: The ruling doesn't address that scenario, but the discussion makes clear the subtraction under § 612(c)(3-b)(i) is available only to a taxpayer who is retired on disability, under 65, and permanently and totally disabled - all three conditions would need to be met.

Citations and references

• Tax Law § 601 - imposes tax on the New York taxable income of a resident individual
• Tax Law § 607(a) - terms used in Article 22 carry their federal income tax meaning unless a different meaning is clearly required
• Tax Law § 611(a) - defines the New York taxable income of a resident individual
• Tax Law § 612(a) - New York adjusted gross income means federal adjusted gross income with the modifications in § 612
• Tax Law § 612(c)(3-b)(i) - subtraction for disability income that would have been excluded under former IRC § 105(d), capped along with the pension/annuity exclusion at $20,000
• Tax Law § 671(a)(1) - requires employers to withhold tax from taxable wages
• 26 U.S.C. § 3401(a) - defines "wages" for federal withholding purposes
• former 26 U.S.C. § 105(d) - repealed provision excluding disability income of the permanently and totally disabled, referenced by Tax Law § 612(c)(3-b)(i)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a04_5i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(5)I
Income Tax
September 21, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I040506A

On May 6, 2004, a Petition for Advisory Opinion was received from Gerard Altieri, 35
Highridge Road, Hartsdale, New York 10530.
The issue raised by Petitioner, Gerard Altieri, is whether certain income received is subject
to New York State personal income tax and the withholding of tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
As a fireman, Petitioner was injured in a job related accident and received a letter of
disability from his physician. As a result of his disability, Petitioner has been reassigned to desk
duties. At the end of the tax year, Petitioner receives a Wage and Tax Statement, federal Form W-2.
Applicable law and regulations
Section 601 of the Tax Law imposes a tax for each taxable year on the New York taxable
income of every resident individual.
Section 607(a) of the Tax Law provides, in part:
General. Any term used in this article shall have the same meaning as when used in
a comparable context in the laws of the United States relating to federal income taxes, unless
a different meaning is clearly required....
Section 611(a) of the Tax Law provides:
General. The New York taxable income of a resident individual shall be his
New York adjusted gross income less his New York deduction and New York exemptions,
as determined under this part.
Section 612 of the Tax Law provides, in part:
(a) General. The New York adjusted gross income of a resident individual means his
federal adjusted gross income as defined in the laws of the United States for the taxable year,
with the modifications specified in this section.
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TSB-A-04(5)I
Income Tax
September 21, 2004

(c) Modifications reducing federal adjusted gross income. There shall be subtracted
from federal adjusted gross income:
*

*

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(3-b)(i) Disability income included in federal gross income, to the extent that such
disability income would have been excluded from federal gross income pursuant to the
provisions of subsection (d) of section one hundred five of the internal revenue code of
nineteen hundred fifty-four had such provisions continued in effect for taxable years
commencing after December thirty-first, nineteen hundred eighty-three as they were in effect
immediately prior to the repeal of such subsection. Notwithstanding the foregoing, the sum
of disability income excluded pursuant to this paragraph, and pension and annuity income
excluded pursuant to paragraph three-a of this subsection, shall not exceed twenty thousand
dollars.
Section 671(a)(1) of the Tax Law requires employers to withhold tax from wages, and
provides:
Every employer maintaining an office or transacting business within this state and
making payment of any wages taxable under this article shall deduct and withhold from such
wages for each payroll period a tax computed in such manner as to result, so far as
practicable, in withholding from the employee's wages during each calendar year an amount
substantially equivalent to the tax reasonably estimated to be due under this article resulting
from the inclusion in the employee's New York adjusted gross income or New York source
income of his wages received during such calendar year. The method of determining the
amount to be withheld shall be prescribed by regulations of the commissioner, with due
regard to the New York withholding exemptions of the employee and the sum of any credits
allowable against his tax.
Section 3401(a) of the Internal Revenue Code (IRC) provides, in part:
Wages. For purposes of this chapter, the term “wages” means all remuneration (other
than fees paid to a public official) for services performed by an employee for his employer,
including the cash value of all remuneration (including benefits) paid in any medium other
than cash;...
Opinion
Section 612 of the Tax Law provides that the New York adjusted gross income of a resident
individual means the individual’s federal adjusted gross income with the modifications specified in
such section 612. Section 612(c)(3-b)(i) contains a subtraction modification for certain disability
income included in federal adjusted gross income that would have been excluded under IRC section

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Income Tax
September 21, 2004

105(d) prior to its repeal. A taxpayer is eligible for this subtraction modification if the taxpayer is
not yet 65 years of age at the end of the tax year, the taxpayer retired on disability and the taxpayer
is permanently and totally disabled when the taxpayer retired. An individual is permanently and
totally disabled if he or she is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not less than twelve months.
(See former IRC section 105(d).)
In this case, Petitioner has a disability, but since Petitioner has been reassigned to desk duty,
Petitioner is not permanently and totally disabled and is not yet retired. Accordingly, wages
received by Petitioner are not eligible for the disability income subtraction under section
612(c)(3-b)(i) of the Tax Law. Therefore, pursuant to section 612(a) of the Tax Law, wages paid
in connection with Petitioner’s reassignment to desk duty that are included in Petitioner’s federal
adjusted gross income are included in New York adjusted gross income subject to New York State
personal income tax. In addition, pursuant to section 671 of the Tax Law, these wages are taxable
wages paid to Petitioner and are subject to New York State’s withholding of tax.

DATED: September 21, 2004

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.