Overhaul of New York State Income Tax & Reductions of MTA Tax

As announced recently by New York State Governor Andrew Cuomo, an overhaul of New York State’s income tax on individuals is effective from January 1, 2012, including the following tax rate changes:

Income Level                 2011 Rate         New Rate for 2012 onwards

$40,000 - 150,000         6.85%                6.45%
$150,000 - 300,000       6.85%                6.65%
$300,000 - 500,000       7.85%                6.85%
$500,000 - 2,000,000    8.97%                6.85%
Above $2,000,000         8.97%                8.82%

All rates above are for married individuals filing joint returns.

Observation: The 2011 rates for higher income levels were scheduled to expire at the end of 2011, at which point rates were scheduled to revert to 6.85% on all income at or above $40,000.

New York State has issued updated withholding tax tables for employers to use reflecting the above rate changes. Further, individuals paying estimated tax (generally due in four equal installments payable on April 15, June 15, September 15 and January 15 of the current tax year) should be aware of the new rates in calculating their estimates.

Reduction of MTA Tax Rates
The recent legislation also significantly reduces the Metropolitan Commuter Transportation Mobility Tax (MCTMT), referred to here for convenience as the MTA tax. Previously, the rate was 0.34% on the payroll expense of every employer engaged in business within the Metropolitan Commuter Transportation District (MCTD) and on the net earnings exceeding $10,000 from self-employment of individuals (including partners in partnerships and members of LLCs) that are attributable to the MCTD.

Observation: The MTA tax is imposed on employers and self-employed individuals (including partners in partnerships and members in LLCs), so employees need not file anything.

Effective from April 1, 2012, the MTA payroll tax has been reduced to the following rates:

Payroll Expense in any Calendar Quarter             New Rate

Below $375,000                                                        0.11%
$375,000 - 437,500                                                  0.23%
Above $437,500                                                        0.34%

For net earnings from self-employment of individuals that are attributable to the MCTD, the rate from April 1, 2012 is 0.34% if the earnings exceed $50,000 for the tax year.

Observation: If such self-employment earnings exceed $50,000, then even the first such earnings are subject to the tax.

Redefinition of MTA Taxable Employer

Effective from April 1, 2012, the definition of an MTA payroll taxable employer has been significantly modified: 

  • Such a taxable employer includes an employer required to withhold New York State income tax from wages and which has payroll expense in any calendar quarter exceeding $312,500 – previously only $2,500.

Observation: Once an employer hits the taxable threshold in any quarter, the MCTMT must be filed & paid every quarter. If such an employer has payroll expense below the threshold for a later quarter, a return still must be filed showing no tax due. 

  • Eligible educational institutions are excluded, including any public school district, a board of cooperative educational services, a public elementary or secondary school, a school approved pursuant to Article 85 or 89 of the education law to serve students with disabilities of school age, or a nonpublic elementary or secondary school that provides instruction in grade one or above.

Reminder of Basic MTA Tax Rules 

  • Self-employed individuals who will owe MTA tax are required to make estimated tax payments due on April 30, July 31, October 31, and January 31 of the current year. The estimated payments cannot be combined with estimated New York State personal income tax payments. As an alternative to each partner in a partnership making estimated tax payments and filing separate reconciliation returns, a partnership that meets certain conditions may file one group reconciliation return on behalf of all participating partners (resident and nonresident) and make group estimated tax payments. 
  • The MCTD includes the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester. 
  • Taxable employers and self-employed individuals above the taxable thresholds must file first quarter 2012 returns by April 30, 2012. Second quarter returns, with the rate and definitional changes implemented as noted above, are due by July 31, 2012.

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