New York passed its 2021-2022 budget bill, a $212 billion dollar spending package that primarily increases taxes on high earning individuals and businesses. Below are the five areas affected taxpayers need to consider.
New York will increase tax rates on high earning taxpayers by creating three new marginal tax rate brackets. The top individual New York state income tax rate was 8.82% in 2020. For tax years 2021 to 2027, the New York tax rate brackets for the majority of joint filers are as follows:
In addition, the bill creates a personal income tax credit for residents earning income of $250,000 or less. New York resident homeowners are permitted an income tax credit on the real property tax that exceeds 6% of the taxpayer’s qualified gross income, not to exceed 14% of the amount of the excess real property tax.
New York followed in the steps of its neighbors, Connecticut and New Jersey, to pass legislation allowing a pass-through entity to annually elect to remit entity tax on behalf of its owners. By doing so the entity may deduct the state taxes paid for federal tax purposes, thereby circumventing the $10,000 federal cap imposed on an individual’s state and local deductions.
Qualifying pass-through entities may annually evaluate the potential benefit of this tax election. The annual New York pass-through election must be made by the due date of the first estimated tax payment (most often March 15). However, for the initial 2021 tax year, a pass-through entity must make its election by October 15, 2021.
The New York pass-through entity tax rates will range from 6.85% to 10.90%. The owners of the electing entity will then receive a refundable credit against their personal income tax liability. In addition, the bill allows a resident tax credit on New York’s personal income tax for any pass-through entity taxes paid to other states that are similar to New York’s pass-through entity tax.
The bill also defers the 2021 phase-out of the state business capital tax base until 2024. Effective with tax years beginning on or after January 1, 2021, through tax years beginning before January 1, 2024, the budget bill temporarily increases the corporate franchise tax rate from 6.5% to 7.25% for companies when a business’ income tax base is greater than $5 million. The budget bill did not make changes to New York City’s business capital tax rates.
The budget bill also decouples New York and New York City from the federal Qualified Opportunity Zone Program beginning in 2021. As such, both business and individual taxpayers must adjust their New York taxable income to add back the gains deferred on their federal income tax returns related to the Qualified Opportunity Zone Program.
New York also updated the real estate transfer tax provisions for conveyances effected on or after July 1, 2021, or pursuant to binding written agreements for conveyances of property entered into on or before April 1, 2021. The bill mandates the tax is owed by the grantor, unless the grantee and grantor contract otherwise. If the grantor fails to pay the transfer tax, the grantor and grantee are jointly and severally liable for the tax, and the grantee may take action against the grantor to recover the tax, interest and penalties paid by the grantee.
The bill also excludes the “mansion tax” imposed under New York Tax Law Section 1402-a from the calculation of the consideration subject to the transfer tax under New York Tax Law Section 1402.
Please contact Hannah Prengler at hprengler@cohenco.com, Matt Welsh at mwelsh@cohenco.com or a member of your service team for further discussion.
Cohen & Co is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.