By now you’ve sent in your 2021 taxes or filed for an extension. It’s time to bring our focus to 2022. There are important changes with New York State’s taxes that give New Yorkers the unfortunate distinction of paying the highest combined state and local tax rate in the country. Here’s what you need to know:
Personal Income Tax Increases:
New York State’s current maximum tax rate on individuals has increased from 8.82% to 9.65% for the 2021-2027 calendar years. Here’s a quick rundown of which taxable incomes this applies to:
- Single filers with taxable income more than $1,077,550.
- Heads of households with income more than $1,616,450.
- Joint filers with income more than $2,155,350.
Two new upper limit tax rates, which apply regardless of filing status, also have been added:
- 10.3% on income more than $5 million
- 10.9% on income more than $25 million.
These increases leave New York State with one of the highest marginal state tax rates in the country and expose New York City residents to income tax at a rate as high as 14.776%.
The news is a bit better for middle class taxpayers.
The tax brackets implemented in 2021 will not change:
- The rate is 5.97% for married taxpayers filing jointly in the $43,000-$161,550 income bracket.
- It’s 6.33% for married taxpayers filing jointly in the $161,550-$323,200 income bracket.
Corporate Income Tax Increases:
Through 2023, the corporate income tax rate of 6.5% remains in effect for the first $5 million of taxable income but increases to 7.25% with respect to income more than that amount.
Elective Pass-Through Entity Tax:
The Pass-Through Entity Tax started in 2021 to help New York individual taxpayers work around the $10,000 federal limitation on the deduction of state and local taxes. It is available to eligible partnerships and S corporations. Because the tax is imposed directly on the pass-through business entity and not its individual owners, the tax is deductible “above the line” for federal income tax purposes and not as an itemized deduction subject to the $10,000 federal limit.
Individual owners receive a credit against their New York State personal income tax liability for some or all their share of the tax paid by the entity. The pass-through entity election to pay this tax must be made annually by the due date of the first estimated payment. Once made, the election is irrevocable. Other states, including New Jersey and Connecticut, have enacted similar laws specifically targeted at the federal deduction limitation.
There will be changes to the following tax credits:
- Eligibility for the Empire State film production and post-production tax credits will be extended to 2026 and adds additional counties as eligible sites.
- The musical and theatrical production tax credit will be extended through 2025. New York has added a new $100 million tax credit program under which eligible New York City musical and theatrical production companies can claim a credit for tax years beginning on or after January 1, 2021 through December 31, 2023 equal to 25% of qualifying production expenditures, subject to a maximum credit of $3 million per qualifying New York City musical and theatrical production for first performances during the first year applications are accepted and $1.5 million for first performances in the second year applications are accepted.
- There is a $35 million “restaurant return-to-work tax credit program” under which eligible businesses can claim a $5,000 credit (limited to $50,000 in total tax credits) for each net full-time equivalent employee increase.
If you have questions about any of these changes to personal or corporate income tax changes in New York State or any other state, please contact us.