New York City residents have always been hit hard by the high personal income tax rates, which can go as high as a combined State and City rate of almost 12.7%. The pain moderated to some degree by the federal itemized deduction for state and local taxes no longer provides any relief since the deductions cap under federal tax reform.
Clients have been looking for a way out. Some are willing to go as far as leaving their formerly beloved NYC for good. When I heard some grumbling about the New York City tax rate dropping, I was excited for taxpayers, but surprised that this was the first I heard of it.
While the past few years have had some shifts in the brackets, I was not aware of any change to the City’s top rate of 3.876%. What I did know is New York, in its wisdom, has a history of enacting tax rates with separate, but equally imposing temporary surcharges.
So I pulled out a copy of the law, which those of you who are familiar know, trying to figure out what your New York City or State tax rate really is, can be called confusing at best. Even the state tax reporters need to have blended rate tables factoring in the surcharges.
The only positive glimmer of hope I could find: the so-called “additional tax” of 14% imposed on the base New York City tax of 3.4% (14% of the 3.4% tax results in the actual top rate of 3.876%) is imposed only through tax years beginning before 2021. If nothing happens, it looks as though the top New York City rate will drop to 3.4% beginning 2021.
That is the good news for those of you who love bad news. Why would a drop in rates ever be framed as bad news? New York lawmakers have a long history of extending temporary surcharges and taxes. Will the additional tax be extended? Who is to say? No one really knows what the New York City tax rate will be.
If I have raised questions, (and I have) contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.