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NYS Adopts Tax Increases for High Income Taxpayers Along with Other Significant Tax Code Changes

On Tuesday, April 6, 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 percent and would increase according to the following schedule for the years 2021 through 2027.

Personal Income Tax Rate Increase Graph

Corporation Tax Rates

Franchise Tax Rate

The proposed business corporation franchise tax rate would increase from 6.5 to 7.25 percent 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 percent 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 percent 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, 2021. 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).

2021 looks to be a year that will include many changes in tax law. Watch in the following weeks for further updates and alerts as developments occur and don’t hesitate to reach out to our experts to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.