New York State 2018-2019 Executive Budget
By Robert Spielman, Partner, Tax & Business Services
New York Governor Andrew Cuomo announced the adoption of New York State’s 2018-2019 Executive Budget on March 30, 2018. While specific details are yet to be released, and legislation and regulations issued, New York’s tax-related changes are principally designed to protect New Yorkers from changes under the Tax Cuts & Jobs Act which adversely affect them.
Key Budget Provisions
- Reducing the impact of the federal state and local tax deduction changes by expanding charitable contributions and creating an alternative employer compensation expense program.
- The budget establishes two state-operated charitable contribution funds to accept donations for improving healthcare and education. Taxpayers making donations may claim a state tax credit equal to 85% of their donation for the tax year after the donation is made. For federal purposes, as a charitable contribution, the payment is deductible without limitation.
- The legislation authorizes school districts and other local governmental units to create similar charitable funds. Donations to these funds would create a reduction in local property taxes through a similar credit mechanism equal to a percentage of the donation. More rules to come.
- The budget creates an alternative employer compensation expense program whereby employers would, in essence, pay income taxes for employees who would have their compensation reduced by a like amount. Under the plan, there is a 5% tax on all annual payroll expenses in excess of $40,000 per employee, phased in over (3) years beginning on January 1, 2019. The payment would be deductible to the company, with the employee receiving a credit against his/her New York State tax liability. Thus, an individual would receive an offset to taxable income in lieu of a state income tax deduction.
New York State is in the forefront challenging the federal changes in the state and local tax deduction and in creating new donation and employer-level taxation strategies. Because of the potential revenue loss to the federal government, we fully anticipate challenges to these alternative structures. We recommend caution in fully relying upon them for significant tax relief. The validity of these strategies will only become certain after acquiescence by the federal government or victory by taxpayers in a formal challenge, administratively or in court.
- The budget continues the phase-in of middle class tax cuts. New rate tables drop the marginal rate from 6.45% to 5.5% for incomes ranging from $40,000 to $150,000. The 6.65% rate will drop to 6% for incomes ranging from $150,000 to $300,000. These lower rates will phase-in over the next few years.
- The budget decouples the New York State tax code from numerous federal tax code provisions, to prevent taxpayers from paying additional state taxes, solely due to increases in federal taxes. Details on this decoupling will be forthcoming in new rules and regulations.
- The budget authorizes New York State to create a voluntary enrollment payroll deduction IRA for employees of private employers that do not offer retirement savings plans. This program will provide New Yorkers who currently have no access to retirement plans the opportunity to save for retirement. It alleviates the burdens and expenses on small businesses of creating and sponsoring retirement plans on their own.
- Other budget provisions affecting the business community include:
- Significant increases in education funding.
- A multi-prong strategy to combat sexual harassment in the workplace.
- A 2.75% surcharge on for-hire vehicles operating below 96th Street in New York City.
- $1.2 billion to make college more affordable.
- Significant funding to improve workforce availability, apprenticeships, and training.
We await upcoming statutory changes, rules, and regulations that will implement this bold action plan.
Marcum professionals will continue to keep our clients and friends apprised of all developments and challenges that arise with respect to New York State’s 2018-2019 budget.