Photo Courtesy of Mike Groll/Office of the Governor
State Budget Director Robert Mujica
By Forum Staff
Thirty-day amendments to the State Executive Budget will include legislation allowing employers to opt-in to a new payroll tax system to protect their employees from federal tax increases, Gov. Andrew Cuomo announced on Monday.
Additionally, Cuomo explained, the proposed law will create two new funds to accept donations to fund health care and education programs, allowing taxpayers who itemize their deductions to deduct those donations from their federal taxes. And the budget amendments will include provisions to decouple the state tax code from the federal tax code so that state taxpayers do not see increased state taxes because of federal tax increases.
“These amendments to the Executive Budget will protect New York’s taxpayers, our State Budget, and our economic competitiveness,” State Budget Director Robert Mujica, Jr. said.
According to the administration, legislation to be included with 30-day amendments will protect taxpayers by:
Creating a new Employer Compensation Expense Tax: While federal tax reform eliminated full state and local tax deductibility for individuals, businesses were spared from these limitations. Under 30-day legislation, to protect their employees from the tax increases associated with the limitations on SALT deductibility, employers would be able to opt-in to a new Employer Compensation Expense Tax system. Employers that opt-in would be subject to a five-percent tax on all annual payroll expenses in excess of $40,000 per employee, phased in over three years beginning on Jan. 1, 2019. The progressive personal income tax system would remain in place, and a new tax credit corresponding in value to the ECET would cut the personal income tax on wages and ensure that state filers subject to the ECET would not experience a decline in take-home pay. Overall, the proposal is designed to be revenue neutral for the state while giving employers the opportunity to reduce their employees’ federal taxes, Cuomo noted.
Charitable Contributions to Benefit New Yorkers: The legislation creates two new State-operated charitable contribution funds to accept donations for the purposes of improving health care and education in New York. Taxpayers who itemize deductions could claim these charitable contributions as deductions on their federal and state tax returns. Any taxpayer making a donation could also claim a state tax credit equal to 85 percent of the donation amount for the tax year after the donation is made. The amendment also authorizes school districts and other local governments to create charitable funds for education and health care. Donations to these funds would provide a reduction in local property tax bills (via a local credit) equal to a percentage of the donation.
Decoupling from federal tax code: According to Cuomo, the state tax code is closely aligned with the federal tax code. This legislation decouples the state tax code from the federal tax code, where necessary, to avoid more than $1.5 billion in state tax increases brought solely by increases in federal taxes. Federal tax reform capped the itemized deduction for SALT at $10,000. The governor proposes to decouple from this cap so New York taxpayers are not subjected to a $441 million state-tax increase from the flow through of this cap to state income tax returns. The legislation also decouples from other federal deduction changes, saving state taxpayers $269 million annually beginning in FY 2020. The 30-day amendments will also maintain the State standard deduction for single filers.
