In April, New York Governor Andrew Cuomo announced the approval of a 2018 budget that included straightforward tax cuts for the middle class along with more complex fiscal measures. Let's unpack how those changes affect accounting professionals and tax preparers.
Sweeping Personal Income Tax Cuts
The tax cuts, also called the Middle Class Recovery Act, will eventually benefit 6 million New Yorkers. The cuts apply to two income brackets: those making between $40,000 and $150,000 a year and those making between $150,000 and $300,000 a year.
The lower bracket will see a reduction of 0.12% a year, reducing the rate from 6.45% to 5.5% by 2025. Those in the higher bracket will be see a reduction of 0.08% over the same time period, decreasing their rate from 6.65% to 6%.
No Change for Millionaires
New York's so-called "Millionaire Tax" — a rate of 8.82% applicable to unmarried individuals with an income over $1 million, married over $2 million and heads of the household with an income over $1.5 million — was set to expire at the end of this year. But now, it has been extended through 2019.
Other Notable Provisions
While the personal income tax rates obviously affect the greatest number of filers, there are several other items of note in the budget bill. These include:
- New legal status for single-member limited liability companies (SMLLCs). The New York Tax Appeals Tribunal has changed the definition of SMLLCs (and therefore their eligibility for state tax credits). Moreover, the change is retroactive to the full extent of the statute of limitations.
- Changes in nonresident exemptions. Under certain conditions, nonresident partners are now subject to New York State taxes for the sale or transfer of partnership assets that include real property. In addition, nonresident businesses are no longer exempt from use tax if they have been operating elsewhere for more than six months before they begin operating in New York.
- New "maximum minimums." Real estate investments trusts and regulated investment companies are now subject to "maximum minimum" taxes ranging from $25 to $500, depending on the entity's New York receipts. (The taxes are fixed amounts rather than percentages.) Exemptions include mortgages.
- Extension of limits on deduction of charitable contributions. The current limits for individual deduction of charitable contributions — 50% for those with an adjusted gross income between $1 million and $10 million, 25% for those with an adjusted gross income of more than $10 million — will remain for an additional two years.
For more details on these and other changes in New York's tax laws, see this article in The CPA Journal.