New York Governor Andrew Cuomo recently outlined two budget options for fiscal year 2022, which begins on April 1, 2021. The first option advances an aggressive post-COVID reconstruction plan, whereas the second would force the state to significantly raise taxes, cut expenditures and borrow funds to remain operational. The choice between options will depend on the level of funding the federal government provides to New York to aid in covering the $15 billion budget deficit the state is experiencing in the wake of the pandemic’s crushing economic crisis.
If the federal assistance to New York is limited, Cuomo’s budget proposal would temporarily increase the state’s top individual income tax rate from 8.82% to 10.86% via an income tax rate surcharge. This surcharge would be in effect for tax years 2021 through 2023, and applied as follows:
- 5% on income between $5 million and $10 million taxable income;
- 1% on income between $10 million and $25 million;
- 5% on income between $25 million and $50 million;
- 75% on income between $50 million and $100 million; and
- 2% on income over $100 million.
For residents of New York City, the top city rate combined with a 10.86% state tax rate would result in a combined 14.696% tax, which would be the highest combined state and local income tax rate in the country.
In addition, the budget proposal would delay the implementation of lower personal income tax rates for middle-income New Yorkers by one year. This phased tax cut, enacted in 2016, would continue to use the 2020 rates instead of the intended tax cut scheduled for tax year 2021. The goal of that tax cut was to reduce taxes from 6.45% to 5.5% for joint taxpayers earning between $40,000 and $150,000 and from 6.65% to 6% for joint filers earning between $150,000 and $300,000.
It is also important to note that the proposed budget would create a voluntary pass-through entity tax to help mitigate the impact of the $10,000 federal SALT cap. Pass-through entities, including S corporations and partnerships, would be able to deduct this tax on their federal returns, and their shareholders and partners would be allowed a credit against their state income tax for their distributive share of income.
With the beginning of the next fiscal year only a couple of months away, much work still needs to be done before the budget is finalized. Now that the Governor has prepared the budget proposal, or in this year’s case, proposals, it is up to the State Legislature to review the proposals, seek further information from the various agencies seeking fund appropriations and offer program alternatives. To date, a number of state lawmakers have presented additional proposed tax hikes, including raising the state’s tax rate on income subject to federal capital gains rates, increasing taxes on CEO compensation and levying a New York City pied-à-terre tax on secondary residences.
Anchin will continue to monitor New York’s ongoing budget negotiations, as well as the much anticipated COVID-19 relief bill from Washington, and keep you abreast of any new developments. If you have any questions with respect to the impact of New York’s proposed tax increases on your personal income taxes, please contact Alan Goldenberg, Leader of Anchin’s State and Local Tax (SALT) group, or your Anchin Relationship Partner.
Disclaimer: Please note this is based on the information that is currently available and is subject to change.