New York Advisory Opinion TSB-A-86 (14)I: Are Railroad Unemployment Insurance Act benefits and Title VII Regional Rail Reorganization Act of 1973 benefits exempt from New York personal income tax?

Plain-English summary

John and Margaret Doran had included two kinds of railroad-related benefits in their New York adjusted gross income for 1984 and 1985: benefits under the federal Railroad Unemployment Insurance Act, and benefits under Title VII of the Regional Rail Reorganization Act of 1973 (which pays allowances to employees for job loss, moving expenses, retraining, termination, and health/welfare insurance premiums, among other things). They asked the Department whether either category was exempt from New York tax, hoping to claim a refund if so.

The two benefit types got opposite answers, both turning on whether a federal statute independently barred state taxation. Railroad Unemployment Insurance Act benefits are includible in federal adjusted gross income under IRC § 85, but 45 U.S.C. § 352(e) - part of the Railroad Unemployment Insurance Act itself - flatly states that "[n]otwithstanding any other law of the United States, or any State ... no benefits shall be assignable or be subject to any tax." That federal preemption is echoed in New York's own regulation, 20 NYCRR 116.3(t), which subtracts such benefits from federal adjusted gross income specifically because they're "exempt from State income taxes under the laws of the United States." So the Dorans could subtract these benefits from their New York income and were entitled to a refund of the tax paid on them for 1984 and 1985.

Title VII Regional Rail Reorganization Act benefits got the opposite treatment. That statute (45 U.S.C. § 797) contains no provision comparable to § 352(e) exempting its benefits from state taxation, and no separate New York statute or regulation provides a subtraction for these particular benefits. Because there was no federal preemption and no state exemption to fall back on, the benefits remained fully includible in New York adjusted gross income to the extent included federally - and the Dorans were not entitled to a refund on those amounts.

What this means for you

Former railroad employees receiving Railroad Unemployment Insurance Act benefits

If you've included Railroad Unemployment Insurance Act benefits in your New York taxable income, you may be entitled to a refund - federal law (45 U.S.C. § 352(e)) bars any state from taxing these benefits, and New York's own regulation (20 NYCRR 116.3(t)) implements that exemption by subtracting them from federal adjusted gross income.

Employees receiving Regional Rail Reorganization Act (Title VII) allowances

Don't assume these benefits get the same tax-free treatment as Railroad Unemployment Insurance Act benefits just because both relate to railroad restructuring. This opinion confirms Title VII benefits are fully taxable in New York, since the federal statute authorizing them contains no state-tax exemption and New York has no separate subtraction provision for them.

Tax preparers reviewing amended returns for railroad-industry clients

When multiple types of railroad-related federal benefits appear on a return, check each one against its own governing federal statute for an explicit state-tax-preemption clause (like § 352(e)) rather than assuming a blanket "railroad benefits are exempt" rule - as this opinion shows, benefits that look similar on the surface can have entirely different state-tax outcomes.

Common questions

Q: Are Railroad Unemployment Insurance Act benefits taxable in New York?
A: No. Federal law (45 U.S.C. § 352(e)) bars any state from taxing these benefits, and New York's own regulation subtracts them from federal adjusted gross income for that reason. If you paid New York tax on these benefits, you may be entitled to a refund.

Q: What about benefits under Title VII of the Regional Rail Reorganization Act of 1973?
A: These ARE taxable in New York. The Department found no federal provision exempting them from state tax and no New York statute or regulation providing a subtraction, so they remain part of New York adjusted gross income to the extent included in federal adjusted gross income.

Q: Why do these two types of railroad benefits get different tax treatment?
A: The difference comes down to an express federal preemption clause. The Railroad Unemployment Insurance Act (45 U.S.C. § 352(e)) specifically bars state taxation of its benefits "[n]otwithstanding any other law ... of any State." The Regional Rail Reorganization Act's Title VII provision has no equivalent language, so ordinary state taxability applies.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a86_14i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (14) I
Income Tax
October 22, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I860701A

On July 1, 1986, a Petition for Advisory Opinion was received from John H. and Margaret
E. Doran, 433 Whittier Avenue, Syracuse, New York 13204.
The issue raised is whether benefits received under the Railroad Unemployment Insurance
Act and benefits received under Title VII of the Regional Rail Reorganization Act of 1973 are
exempt from the personal income tax imposed under Article 22 of the Tax Law. Petitioners have
included such unemployment benefits and Title VII benefits in New York adjusted gross income on
their New York State personal income tax return for the years 1984 and 1985 and question whether
they may receive a refund for taxes paid on these amounts.
The New York adjusted gross income of resident individuals equals such individuals' federal
adjusted gross income with certain modifications.
Section 85 of the Internal Revenue Code (26 USCS 85) makes certain unemployment
compensation subject to federal income tax. Among the unemployment compensation which may
be included in federal adjusted gross income are benefits under section 2 of the Railroad
Unemployment Insurance Act (45 USCS 352). See 26 CFR 1.85-1 (b) .
However, the state taxation of Railroad Unemployment Insurance Act benefits is governed
by section 352(e) of Title 45 of the United States Code, which provides in pertinent part:
Notwithstanding any other law of the United States, or any State, Territory, or the
District of Columbia, no benefits shall be assignable or be subject to any tax or to
garnishment, attachment, or other legal process under any circumstances whatsoever,
nor shall the payment thereof be anticipated.
Additionally, section 116.3(t) of the New York State Personal Income Tax Regulations
explains that among the items to be subtracted from federal adjusted gross income in computing the
New York adjusted gross income of a resident individual are "Railroad unemployment benefits...to
the extent they are includible in gross income for federal income tax purposes but exempt from State
income taxes under the laws of the United States."

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (14) I
Income Tax
October 22, 1986

Accordingly, to the extent that Railroad Unemployment Insurance Act benefits received
under section 352 of Title 45 of the United States Code are included in Petitioners' federal adjusted
gross income, they should be subtracted out in computing Petitioners' New York adjusted gross
income. If Petitioners have included such benefits in their New York adjusted gross income on
their 1984 and 1985 personal income tax returns, they may apply for a refund of the taxes paid on
such amounts.
Section 701 of Title VII of the Regional Rail Reorganization Act of 1973 (45 USCS 797)
provides for the payment of funds for allowances to employees deprived of employment, moving
expenses, retraining expenses, termination allowances, health and welfare insurance premiums and
other purposes. The Regional Rail Reorganization Act of 1973 contains no provision similar to
section 352(e) of Title 45 of the United States Code which would exempt such benefits from state
taxation. No provision of New York State law or regulations provides for the subtraction of Regional
Rail Reorganization Act benefits from federal adjusted gross income in calculating New York
adjusted gross income.
Accordingly, to the extent that such benefits are included in federal adjusted gross income,
they must also be included in New York adjusted gross income. No subtraction modification is
provided for such benefits and Petitioners are not entitled to a refund of taxes paid on such amounts.

DATED: October 22, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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