NYS Budget Bill Includes Tax Increases for High Income Individual and Business
Taxpayers Along with Other Significant Tax Code Changes
The fiscal year 2021-2022 New York Budget Bill was approved after passing through the Senate and Assembly. The legislation, which Governor Cuomo is expected to sign into law, includes many new changes that will affect higher income individuals and corporations.
Personal Income Tax Rate Increase
Personal income tax rates are on the rise if your income is over $1 million. The highest state income tax rate is currently 8.82% and would increase according to the following schedule for the years 2021 through 2027.
Corporation Tax Rates
Franchise Tax Rate
The proposed business corporation franchise tax rate would increase from 6.5% to 7.25% for taxpayers with a “business income base” greater than $5 million. This change is effective for taxable years beginning on or after January 1, 2021, through December 31, 2023.
Capital Base Tax Rate
Originally set to phase out completely at the end of 2020, the capital base tax rate is back. The new tax rate is set at .1875% and applies mainly to non-manufacturing taxpayers starting January 1, 2021, through December 31, 2023.
Elective Pass-Through Entity Level Tax
Meant to provide some relief for the $10,000 itemized deduction cap on state and local taxes, the election would allow partnerships and S corporations the ability to pay tax at the entity level. Taxes applied at the entity level are generally deductible at the Federal level and would not have an individual limitation. The election would be on an annual basis and rates would range from 6.85% to 10.9% based on the entity’s taxable income. The individual would then offset tax paid at the entity level with a credit on the personal income tax return.
The proposed legislation outlines various criteria for making the election, which would be effective starting January 1, 2022. The rules also provide for estimated tax payments, claiming the credit, deadline for making the election, non-resident treatment, and more.
Remote Workers During COVID-19 Pandemic
During the COVID-19 pandemic, a taxpayer that required some or all of its employees to work on a remote basis can treat the remote work as having been performed at the location from where it was performed before the pandemic. This speaks to tax benefits and incentives that are based on maintaining a presence within New York State or within specific areas of New York State.
Qualified Opportunity Fund
The proposal also would not adopt federal provisions for excluding or deferring gain due to investment in a qualified opportunity fund under Internal Revenue Code section 1400z-2(a)(1)(A).
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.