Apr 15 New York Tax Increases and Changes

Corporate Tax Increases

For tax years beginning on or after January 1, 2021 and before January 1, 2024, the top corporate income tax rate is increased from 6.5% to 7.25%.  This new rate is applicable to income greater than $5 million.  Further, the State capital-based tax was previously scheduled to completely phase out by 2021.  The phase out of the capital-based tax has now been delayed until 2024.  These changes impact the 2021 corporate tax reporting and should be considered for businesses’ current estimated payment obligations.

Individual Tax Increases

High income earners should expect their taxes to increase for tax years 2021 through 2027.  The legislation affects this tax increase by imposing higher tax rates and at lower income thresholds.  The highest income tax rate had been 8.82%.  The new rates and related income thresholds are:

• Income taxed at 9.65% rate
  • Married individuals filing jointly – income over $2,155,350
  • Heads of households – income over $1,646,450
  • Unmarried individuals, married filings separately, estates and trusts – income over $1,077,550

• Income taxed at 10.3% rate
  • All taxpayers are subject to this rate on income over $5,000,000

• Income taxed at 10.9% rate
  • All taxpayers are subject to this rate on income over $25,000,000

Pass-Through Entity Tax

Like New Jersey, New York has created an elective pass-through entity tax regime beginning with the 2021 tax year. This regime is designed to help taxpayers achieve a federal income tax deduction without limitation.  The election is available to partnerships (defined under IRC Sec. 7701(a)(2)) and S Corps.  This tax will operate on an annual election and the tax rates will range from 6.85% to 10.9%.  Direct partners, members, shareholders will be entitled to a credit to offset their New York State personal income tax obligations.

Telecommuting Employees

The new legislation specifies that temporary telecommuting arrangements resulting from the COVID-19 pandemic will receive special treatment through the end of 2021 or through the date that the COVID-19 disaster is declared over by the state government.  During the pandemic, employees telecommuting should be treated as though they have been performing their work at their normal/customary work location.  For example, an employee telecommuting to work from a New York location would typically create nexus for her employer in the state.  But given this temporary guidance, New York should treat that employee as though she had continued to work from her normal/customary work locations; temporary presence in the state should not create a nexus through this period.

Sales Tax Updates

The new legislation provides one area of tax relaxation as it related to out-of-state sellers.  A vendor will be required to register for sales taxes if its sales into the state exceed $500,000 and has more than 100 transactions in the state.  The threshold for creating nexus had been $300,000 per year.

Sax will continue to update you as further details are made available. Reach out to your Sax advisor or email [email protected] with questions. For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.