February 3, 2021
New York State is facing an important and potentially costly fork in the road.
On one hand, the state could realize a boost in federal funding that would allow it to focus on rebuilding the economy without a significant tax crunch on taxpayers. In a decidedly different scenario, those same individuals could face a tax hike.
In light of that, New York Governor Andrew Cuomo has outlined two budget options for the fiscal year 2022 that begins on April 1, 2021. The first, which would stave off the possibility of tax increases, envisions the federal government filling the state’s $15 billion budget hole. The other, which envisions little to no help, would prompt a temporary tax increase.
In a worst-case scenario, that tax increase could be costly to New Yorkers. For one, a lack of federal assistance would prompt the state to temporarily adopt a top individual income tax rate of 10.86%, up from 8.82%. That tax, which would be considered a surcharge, would take effect in the 2021 fiscal year and run through the 2023 fiscal year.
However, the increase would be phased in based on income, up to $100 million. Here’s a brief rundown of how that phase-in would look:
But the change wouldn’t only affect high-income taxpayers. The governor’s tax-hike proposal also calls for a delay to the phased tax cuts passed in 2016 on those earning between $40,000 and $300,000. Instead of reducing taxes for the 2021 tax year, the proposal would instead use the same tax rates applied to income in the 2020 tax year.
The tax hikes would be especially onerous on New York City residents. A 10.86% tax rate, along with the city tax, would amount to a 14.696% tax on income — the highest state and local tax rate of any city in the country.
Of course, whether these tax increases go into effect is predicated on the federal government’s actions (or lack thereof). But there are other tax implications to consider.
Even if the federal government provides deficit relief to New York State, a variety of state lawmakers have floated other tax increases, including the long-discussed and controversial New York City pied-à-terre tax on secondary residences. Other possible tax hikes on businesses and investment income have also been floated.
As always, all such taxes will be put through the legislative process before they can become law. But suffice it to say that the state tax situation is decidedly in flux. And as always, Perlson LLP will keep a close eye on the developments and keep you informed. If you have any questions, please contact a Perlson LLP professional today at 516-541-0022.
New York State has launched a program that aims at helping you secure the funding you need.