While understandably close attention has been paid to the recent U.S. federal tax changes proposed by President Biden, clients paying tax in New York should also be aware of some of the changes to New York tax law included in the recently approved New York State budget 2021-2022 are. The budget includes tax increases for the “ultra-rich” and corporations; extended a number of tax credits; and adds two new credits for restaurants and music and theater production companies destroyed by the COVID-19 pandemic.
Income tax increase: The budget will increase the current New York State maximum tax rate for individuals for the calendar years 2021-2027 from 8.82% to 9.65%. This rate applies to taxable income greater than US $ 1,077,550 for single applicants, US $ 1,616,450 for heads of household, or US $ 2,155,350 for joint applicants. Two new cap tax rates have also been added that apply regardless of filing status: 10.3% on income over $ 5 million and 10.9% on income over $ 25 million. These increases leave New York State with one of the highest marginal tax rates in the country and expose New York City residents to income tax of up to 14.776% – the highest combined state and local tax rate in the country. For middle class taxpayers, however, the budget maintains the previously approved introduction of middle class tax cuts in 2021 to 5.97% for married taxpayers filing collectively in the $ 43,000 to $ 161,550 income bracket and 6.33% for married taxpayers, who jointly submit in the income bracket $ 161,550 to $ 323,200 income bracket.
Corporate income tax increased: For tax years beginning on or after January 1, 2021 and lasting through 2023, the current corporate income tax rate of 6.5% will remain in effect for the first $ 5 million of taxable income, but will increase with respect to any excess income 7.25% amount. Prior to 2021, New York introduced a “capital base tax” on the working capital of companies doing business in the state when application of the “capital base tax” resulted in a higher tax than income tax or a statutory minimum tax. In 2020 the “capital base” tax rate was 0.025%. The “capital base” tax should be abolished in 2021, but the budget is restoring the “capital base” tax rate for 2021-2023, increasing it to 0.1875%. Housing associations, manufacturers and small businesses are exempt from “capital base tax”.
New election pass-through corporate tax: To help individual taxpayers in New York bypass the federal restriction on deducting state and local taxes of $ 10,000, the budget provides for a new and optional through tax starting in 2021, the eligible partnerships and S Available to Business Where the pass-through entity, rather than its individual owners, is directly imposed, the tax is “over the line” deductible for federal income tax purposes rather than an individual US $ 10,000 federal allowance and is received by individual owners a credit against your New York State personal income tax liability for part or all of the tax paid by the company. The choice of the pass-through company to pay this tax must be made annually by the due date of the first estimated payment. Once made, the choice is irrevocable. A number of other states, including New Jersey, Connecticut, and New Jersey, have passed similar laws specifically aimed at limiting federal withdrawal.
Tax credits:The budget changes the rules for various tax credits, including the following:
- Extends Empire State Film Production and Post Production Tax Credit Availability Through 2026, Adding Additional Counties as Eligible Locations;
- extends the availability of the existing music and theater production tax credit through 2025 and adds a new $ 100 million tax credit program that allows eligible New York music and theater production companies to apply for a tax credit for tax years ending on or after Jan. Starting January, 2021 December 31, 2023 is 25% of qualifying production spend, subject to a maximum of $ 3 million per qualifying New York music and theater production for premieres in the first year. Applications are accepted and US $ 1.5 million for second year premieres applications are accepted; and
- Adds a new $ 35 million “Restaurant Return To Work Tax Credit Program,” which gives eligible businesses $ 5,000 (limited to a total of $ 50,000 in tax credit) for each full-time equivalent Can apply for an increase in the number of full-time employees.