How NY State’s $212B Budget Impacts Tax Rates for Individuals & Corporations
Article

How NY State’s $212B Budget Impacts Tax Rates for Individuals & Corporations

by Alex Thacher, Stephanie Shorkley
April 29, 2021

Summary

On April 19, 2021, New York Governor Andrew Cuomo signed the state’s fiscal year 2021-2022 budget bill (S.2509-C/A.3009-C), which includes significant tax increases to high-earning New York individuals and businesses, but allows a new pass-through entity tax election.

Details

New York State’s record $212 billion budget for 2021-2022 aims to provide relief for those hit hardest by the coronavirus pandemic, including tenants late on rent, undocumented workers who did not qualify for federal aid, and small businesses. The bill increases tax rates on the wealthiest New Yorkers and corporations, and allows pass-through entities to elect into a tax in order to avoid state and local tax deduction caps. The bill includes the following tax provisions:

Corporate franchise tax rate increase:

The amount of corporate franchise tax due for a general business corporation subject to tax under Article 9-A is the highest of either the corporation’s business income base, business capital base or a fixed dollar amount. Under the new budget bill, the corporate franchise tax rate on business income exceeding $5 million will increase from 6.5% to 7.25% for tax years beginning on or after January 1, 2021, and before January 1, 2024. This rate increase does not include qualified manufacturers or qualified emerging technology companies.

The corporate franchise tax rate on business capital tax base will be taxed at a 0.1875% rate as compared to the prior 0.025% for tax years beginning on or after January 1, 2021, and prior to January 1, 2024. The capital base tax increase continues to exempt qualified manufacturers, qualified emerging technology companies and cooperative housing corporations.

State personal income tax rate increase:

Beginning in tax year 2021, the tax rate on joint filers earning more than $2,155,350 will increase from 8.82% to 9.65% . The bill also established two new brackets at a rate of 10.30% for joint filers earning more than $5 million and 10.90% for joint filers earning more than $25 million. These increased personal income tax rates are extended through tax year 2027.

Pass-through entity tax (PTET) election:

For tax years beginning on or after January 1, 2021, eligible taxpayers, which includes partnerships and S corporations, can elect into an annual irrevocable tax election. PTET permits partners, members and shareholders to indirectly deduct state and local taxes that are capped under the Tax Cuts and Jobs Act at $10,000, by paying taxes at the entity level at rates that range from 6.85% to 10.90%. Owners of electing PTEs are allowed a credit against their personal income tax.

Insights

it is important to review your New York state tax liability to determine whether the PTET tax election is proper and ensure that no more income than necessary is captured for New York’s corporate franchise tax. Since New York is a market-based sourcing state, you need to be sure that the proper amounts of income are reflected in the state for apportionment purposes, especially considering the higher rate.

If you have any additional questions or need assistance, contact our experts.

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Authors
Alex Thacher - Partner, Tax - San Jose, CA | Armanino
Partner
Stephanie Shorkley - Tax, San Ramon | Armanino
Senior Manager
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