By: William Bricker, Linda Galler & Maria Pigna
On April 6 and 7, 2021, the New York State Senate and Assembly each passed the state’s Fiscal Year 2022 budget legislation (the “Budget Bill”). Governor Andrew Cuomo, who agreed to the budget prior to passage by both houses, is expected to sign the legislation.
The Budget Bill includes, among other things, notable increases in income tax rates for high income individuals and franchise tax rates for corporations.
More specifically, the New York State personal income tax rate will increase from 8.82% to 9.65% for single filers with taxable income over $1 million and joint filers with taxable income over $2 million. The Budget Bill also adds two new personal income tax brackets:
10.3% for taxable income between $5 million and $25 million (for individuals and joint filers); and
10.9% for taxable income over $25 million (for individuals and joint filers).
When combined with New York City’s top income tax rate of 3.88%, city residents now will face combined state and city marginal tax rates of up to 14.78%. This surpasses California (with a top marginal tax rate of 13.3%) to make New York the highest income tax state in the country.
In addition to increasing personal income tax rates, the Budget Bill will increase the state’s corporate franchise tax rate from 6.5% to 7.25% for taxpayers with business income over $5 million. It also increases the capital base method of liability estimation to 0.1875% from the 0.025% in effect last year. (For most taxpayers, liability is capped at $5 million). New York currently requires corporate franchise taxpayers to calculate tax due under alternative methods and pay the highest amount of tax. The alternative methods have included (i) tax on business income, (ii) tax on business capital, and (iii) a fixed dollar minimum tax.
The new tax increases are expected to generate more than $4 billion in additional revenue each year. However, the Budget Bill has raised considerable concerns about high income New Yorkers leaving the state and city for lower-tax jurisdictions.
Both tax increases are said to be “temporary surcharges,” with the new individual income tax rates expiring after the 2027 tax year and the increase in the corporate franchise tax rate expiring after the 2023 tax year. The increased capital base method rate will also expire after the 2023 tax year.
Comments