The Tax Cuts and Jobs Act of 2017 is set to bring on many changes. Not only will the taxes you pay to the federal government change, but your state taxes could change too as the gears of federalism shift in response. What changes are in store for New York?
According to 24/7 Wall Street, New York residents have the highest taxes compared to all other states. This notion was furthered by Governor Andrew Cuomo who said that the federal tax law "targets" states like New York by capping state and local tax deductions, also known as the SALT provision, at $10,000. In response, Cuomo has proposed giving employers the option to collect a five percent payroll tax to replace the state income tax on workers.
What's in the plan?
According to the New York Post, the plan would be phased in over a period of three years and would allow employers to deduct the tax on their federal returns. Employers would also have the option to contribute to charitable funds that are designed to pay for state-sponsored healthcare and education programs to further reduce their taxes.
Before the federal tax reform, New Yorkers' SALT deductions were not capped, and Cuomo's payroll tax plan is designed to mitigate the loss of this previously unlimited deduction. However, the option to take the payroll taxes lies with employers and not the individual employee. Further, opposing political leaders have questioned the plan's feasibility and have raised doubts that it will have the intended impact.
Why is it important?
Although the Tax Cuts and Jobs Act of 2017 intends to lower taxes overall, it also reduces the number of deductions taxpayers can take. Previously, the SALT provisions were the main reason why taxpayers itemized their deductions. Under the TCJA, fewer taxpayers are expected to itemize, which could impact people like the 73 percent of Westchester County residents who pay more than $10,000 in property taxes alone, according to CNN Money.
If Cuomo's measure passes, it won't take effect until the state's fiscal year begins on April 1; and, like the TCJA, many businesses may not fully understand the effect of the changes until tax time next year.
How could the TCJA and proposed payroll tax affect your business? The answer depends on your situation. For 35 years, New York businesses have trusted these answers to the attorneys at Goldburd McCone, LLP.