By Karen Langley
Taxes are going up for New York's highest earners.
Legislation passed Wednesday raises income-tax rates on single filers with more than about $1.1 million of income and joint filers reporting more than about $2.2 million. The changes mean top earners in New York City will be subject to the highest combined local tax rate in the country.
Income-tax increases are part of a broader state budget deal supported by Gov. Andrew Cuomo. Mr. Cuomo had proposed delaying a scheduled decrease in rates for middle-class payers, but the legislation allows those tax cuts to proceed.
Also in the legislation: a way for some business owners to avoid the $10,000 cap on state and local tax deductions -- know as SALT -- that stung residents of high-tax states such as New York, New Jersey and Connecticut.
Here is what high earners need to know about the new state income-tax rates, which will continue through 2027.
Taxes are going up for high earners.
Joint filers reporting more than about $2.2 million in income up to $5 million will see their state income-tax rate rise from 8.82% to 9.65%. The same is true for single filers reporting more than about $1.1 million.
For filers of any type reporting more than $5 million in income up to $25 million, the tax rate rises to 10.3%. And for taxpayers reporting more than $25 million in income, the rate rises to 10.9%.
Combined with New York City's top income tax of 3.88%, the city's highest earners would be taxed at a top combined state and city income-tax rate of 14.8%. That surpasses California's top income-tax rate of 13.3%, currently the highest top state income-tax rate in the country and Portland, Oregon's top combined income tax rate of 13.9%, the highest top combined state-and-local personal income rate, according to the Tax Foundation.
The new rates take effect this year.
The new tax rates start Jan. 1, 2021, and apply to the tax year already in progress.
Even though 2021 tax returns aren't due until next year, high earners whose employers withhold income taxes will likely see changes in their paychecks, said Alan Goldenberg, principal and leader of the state and local tax practice at accounting and advisory firm Anchin, Block & Anchin LLP.
"There probably will be a makeup," he said. "You adjust tax rates to be slightly higher than the recorded rate here to make up for the first three months that have passed, to make sure people's withholdings are properly withheld."
New Yorkers with high incomes have long fled the state for low-tax states. Advisers to top earners say this could push more to consider moving, especially now that working remotely is more common.
Some business owners can avoid the SALT cap.
New York partnerships and other pass-through businesses -- whose taxes are paid on their owners' individual tax returns -- will have the option of paying a tax to the state, for which they could receive a full federal deduction. Those tax payments would offset the state income taxes owed by the partners.
The move to let some business owners avoid the $10,000 cap on state and local tax deductions follows similar efforts by other states, including New Jersey and Connecticut.
The Treasury Department in November gave its blessing to entity-level taxes on businesses, allowing states to implement them without fear that business owners would still face the cap.
Write to Karen Langley at firstname.lastname@example.org
(END) Dow Jones Newswires
April 08, 2021 14:04 ET (18:04 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.