May 20, 2013

New York Approves Minimum Wage Reimbursement Credit

By Kelly Harris, Senior, Tax & Business

New York Approves Minimum Wage Reimbursement Credit Tax & Business

New Yorkers will see a significant rise in the minimum wage level over the next three years which came as a result of Governor Cuomo’s current $143 billion budget put into effect at the beginning of April. Along with the increases, the budget provides for the Minimum Wage Reimbursement Credit, which was implemented in an effort to subsidize businesses for the increased wage rate.

As of this writing, in May 2013, New York’s current minimum wage level is $7.25/hour, an amount last updated in 2009 when the federal rate was increased to this same amount. Currently, New York is one of twenty-two states that use the federal rate. Nineteen states currently pay a rate above the federal level. Cuomo argued that the current rate is too low to support workers and is unable to keep pace with New York’s rising cost of living. A new hourly rate would help reduce poverty across the state and give a necessary lift to New York’s working class.

In his original budget plan, which was first released in January, Cuomo presented the idea of the minimum wage level to increase to $8.75 which would become effective July 1, 2013. However, in the budget that received final approval, New York’s minimum wage level will increase to $9.00 over the next three years beginning on the last day of 2013. This would match President Obama’s plan to raise the federal minimum wage rate.

The minimum wage increases are not applicable to tipped food service workers and service employees who currently, are covered by the New York State Department of Labor’s Hospitality Industry Wage Order.

How the credit will be implemented:
Over the next three years, the minimum wage level will increase from $7.25 to $9.00 in three increments. The first increment will take place on the last day of 2013 when the rate moves to $8.00 per hour. On the last day of 2014, the rate will increase to $8.75 an hour. Finally the rate will increase to $9.00 per hour on the last day of 2015, becoming one of the highest rates paid in the country, only behind Washington State’s current rate of $9.19.

How the Minimum Wage Reimbursement Credit is designed to help businesses affected by the wage increase:
The new tax credit was developed as a compromise to raise the minimum wage rate while satisfying critics who feared that the hike in the rate would hurt businesses. The following are the major highlights of the minimum wage reimbursement credit:

  • Available to any employer, large or small, who employs students ages 16-19 and pays these eligible employees the wage rate for the given year.
  • Employers must pay the exact minimum wage rate without going over. For example if the wage rate is $8.00/hr at the time, the eligible employee cannot be paid $8.05/hr.
  • The employer would get a refund on its tax bill for the year each eligible employee was employed at the minimum wage rate.
  • During 2014, when the rate increases to $8.00/hour, the state will provide for a reimbursement credit to employers for the $.75/hr increase for any eligible employee that was paid at this rate.
  • In 2015, when the rate increases to $8.75/hour, employers will be eligible for a reimbursement credit up to $1.31/hour for each eligible employee paid at this rate.
  • Finally, in 2016 when the rate increases to $9.00/hour, employers will be entitled to a reimbursement credit of $1.35/hour for each eligible employee paid at this rate.
  • Currently, there is no cap on the amount of benefits employers can receive.
  • Employers are not required to disclose the amounts of credits that they receive.
  • This credit is also available to multinational corporations operating in New York State who meet the same criteria above.

Could taxpayers end up paying for the minimum wage reimbursement credit?
Although the credit is designed as a relief for businesses who employ teens between the ages of 16-19, taxpayers could find themselves paying the majority of the bill for these credits to businesses. Out of the $1.75 increase in the minimum wage rate over the next three years, it is expected that businesses, after receiving the credit will only pay $.40 of that difference and which the taxpayers will pick up the remaining $1.35. Cuomo’s office projects the cost to taxpayers to be $230 million for the first four years of the credit. Critics argue the cost will be a much greater amount, predicting the costs to be closer to $440 million. Other arguments include that teen employee rates are capped at the minimum wage as employers can only receive the credit if they pay the exact minimum wage rate therefore discouraging promotions and merit/time based raises. Critics also argue that this new tax credit will create an incentive for businesses to only hire the younger eligible employees in order benefit from the credit and reduce the hiring of adults older than 19 years of age.

If you have any questions regarding New York’s minimum wage increase or in regards to the Minimum Wage Reimbursement Credit and how it may affect you or your business, please contact your Marcum Tax Advisor.

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