By: Richard Feldman
With the passage of the record $212 billion fiscal 2022 New York State budget, there are many changes, extensions and modifications to the state’s tax rates, credits and processes that need to be considered.
The Janover tax team has reviewed the tax changes that could impact you moving forward. If you have any questions or need help creating a strategy to adapt to the provisions set forth in the new tax law, please contact us by clicking here or reach out to your Janover professional.
Personal Tax Brackets
The bill creates three new incremental tax brackets that are retroactive to January 1, 2021, and will expire after 2027. The new rates and their income brackets are:
- 9.65%: income of more than $1,077,550 for single or married filing separate filers and $2,155,350 for joint filers and $1,616,450 for Head of Household filers.
- 10.3%: income of more than $5 million for all filers.
- 10.9%: income of more than $25 million for all filers.
An 8.82% rate will apply to taxable income of more than $1,077,550 for single or married filing separate filers and $2,155,350 for joint filers and $1,616,450 for Head of Household filers starting January 1, 2028.
Note that tax rates decreased for taxpayers earning less than $323,200 and have stayed the same for other taxpayers.
Taxpayers will need to consider these new rates when making their estimated tax payments that are due on September 15, 2021. The penalty for underpayment of estimated income tax will not apply to any installments due on or before September 15, 2021, if the underpayment results from the new income tax rates and the taxpayer makes the payments by September 15, 2021.
Corporate Franchise Tax Rate
The new tax law temporarily increases the corporate tax for businesses with more than $5 million in income to 7.25% from 6.5% for tax years beginning on or after January 1, 2021, through January 1, 2024. It also increases the capital base method of liability estimation to 0.1875% from the previous rate of 0.025% rate in effect last year. Qualified manufacturers, emerging technology companies, and cooperative housing corporations continue to be exempt.
A new voluntary Pass-Through Entity Tax effective January 1, 2021, is designed to mitigate the impact of the state and local tax (SALT) deductions cap enacted in the 2017 Tax Cuts and Jobs Act. PTEs, such as S Corporations and partnerships, can deduct this tax at the federal level to receive a full deduction for SALT paid before income is passed through to them. A credit will be allowed against regular state income tax to offset the new PTE tax.
In the case of an electing partnership, pass-through entity taxable income includes New York source income of a nonresident partner plus all income of a resident partner. In the case of an electing S corporation, taxable income includes income derived from or connected with New York sources.
The Pass-Through Entity tax will apply for each tax year at graduated rates based on the entity’s taxable income. The rates mirror the personal income tax rate starting at 6.85% for income under $2 million and going up to 10.9% on income over $25 million.
The election will be made annually by the due date of the first estimated payment and is not revocable. For calendar year 2021, the election must be made by October 15, 2021. The electing partnership and the electing S corporation, however, will not be required to make estimated payments for tax year 2021.
The law also grants New York State resident taxpayers a credit for substantially similar Pass-Through Entity taxes imposed by other states.
Real Estate Transfer Tax
The new tax law adds and clarifies language on responsible parties and prohibits sellers from passing the basic tax responsibility onto buyers. It also modifies a 2019 law that requires disclosure of LLC members as a condition of filing the real estate transfer tax to clarify the requirements to record a deed when an LLC is owned by a publicly traded corporation or REIT without interfering with the law’s underlying purpose of transparency in ownership.
These new provisions apply to conveyances made on or after July 1, 2021. However, conveyances made pursuant to a binding contract entered into on or before April 1, 2021, will not be impacted.
Qualified Opportunity Fund Benefit
Under the new law, New York will no longer recognize federal Qualified Opportunity Fund treatment effective for tax years beginning on or after January 1, 2021. New York State and New York City tax (if applicable), will apply to the initial gain and any further gain relating to appreciation of an investment in a QOF. The change in the law does not impact QOF investments made before January 1, 2021.
The Marijuana Regulation and Taxation Act, which legalized the production, distribution and adult-use of marijuana in New York State, now makes cannabis products subject to a state tax of 9%. There’s an additional 4% local tax, with 75% of the local earnings going to municipalities and 25% to counties.
Marijuana distributors will also face a THC tax based on type of product, which includes:
- 5 cents per milligram for flowers
- 8 cents per milligram for concentrated cannabis
- 3 cents per milligram for edibles
Real Property Tax Relief
The new tax law provides a personal income tax credit for New York resident homeowners with incomes up to $250,000 if their total property tax exceeds a fixed percentage of their income. This framework will target New York families with the highest property tax to income burden. The calculation of this credit is capped at $350 per STAR-eligible household, while using a $250 credit minimum. It is expected claims will average about $340. Qualified homeowners will be able to claim this new credit for tax years 2021, 2022, and 2023.
Employer Child Care
The new tax law enhances the Excelsior Jobs Program and Employer Provided Child Care Credit, providing incentives to employers to help them provide childcare to their employees. The Excelsior Jobs Program is expanded up to 5% Investment Tax Credit component and a credit up to 6% of ongoing net childcare expenditures provided by the credit recipient. The Employer Provided Child Care Credit is doubled to 50% of qualified childcare expenditures and 20% of qualified childcare resource and referral expenditures while increasing the per taxpayer cap from $150,000 to $500,000.
Small Business and Arts Relief and Recovery
The new tax law includes a $1 billion small business, arts, entertainment and restaurant relief package to help businesses and other organizations recover from the impacts of the pandemic. Tax credit programs as part of this section include:
- Restaurant Return-To-Work Tax Credit: Provides up to $35 million in tax credits to support restaurants hard hit by the pandemic through 2021.
- New York City Musical and Theatrical Production Tax Credit: Provides up to $100 million in tax credits to jump start the industry and support tourism activity in the City.
- Musical and Theatrical Production Credit: This credit is extended for four years through 2025 and increased it to $8 million.
- Low-income Housing: The Division of Housing and Community Renewal will allocate an additional $400 million over five years.
- Film Credit: The budget extended this credit to run through 2026 with an annual allocation of $420 million. Additionally, this extension includes several Upstate counties to the additional 10% wage and labor credit for post-production projects.
- Brownfield Tangible Property Redevelopment Credit: Extended for two years for projects whose original period did or will expire between March 15, 2020, and December 31, 2021.
- Farm Workforce Retention Credit: Extended through tax year 2024 at the $600 per employee level.
- Alternative Fuels Exemption: The existing full exemptions of E85, CNG, and hydrogen, and the partial exemption of B-20 from motor fuel, petroleum business, and state and local sales taxes is extended for five more years.
- Certain Sales Tax Exemption Related to the Dodd-Frank Protection Act: The new law extends a tax exemption first provided in 2015 that excludes these required transfers from taxable sales. The date by which transfers must be made or a binding contract entered into is extended from June 30, 2021, to June 30, 2024 and the expiration date of the exemption is extended from June 30, 2024, to June 30, 2027.
- Economic Transformation and Facility Redevelopment Program: Communities impacted by the closure of certain correctional and juvenile justice facilities since 2011 can apply for credits through 2026.
- Hire-A-Vet Credit: This credit is extended to cover the 2021 and 2022 hiring periods. The program provides a credit to employers equal to 10% of wages paid to a qualified veteran (up to $5,000) and 15% of wages paid to a disabled veteran (up to $15,000).