Governor Cuomo has signed New York State’s Fiscal Year 2021 budget, which includes several tax rate changes all high earners and business owners in the state should know about.
Touted by the state Senate to accelerate economic recovery and “equitably fund crucial services,” the budget bill aims to accomplish these goals primarily through tax hikes for the state’s highest earners and corporations. But owners of New York partnerships and S Corporations will still make out ahead, with a new entity tax rate that provides a workaround to the federal $10,000 cap on state and local tax (SALT) deductions.
Under the new budget, personal income tax rates on incomes over $1 million will change as follows:
These changes are effective for the 2021 tax year and expire on December 31, 2027. Added to New York City tax rates, New York City’s highest earners will now pay the highest combined state and local income taxes in the nation.
Certain corporate tax rates are also impacted by the new budget:
However, it is not all bad news for business owners. Like the New Jersey legislature did last year, the budget creates a new pass-through entity tax rate that eligible partnerships and S corporations can elect as a workaround to the $10,000 federal cap on SALT deductions. The owners then receive a credit against their gross income tax equal to each member’s share of distributive proceeds paid by the pass-through entity. The tax is effective for taxable years beginning on or after January 1, 2021, at the following rates:
Pass-through entities have until October 15, 2021 to make the election, but the bill is not clear on how this affects individual estimated 2021 payments. Consult with your tax advisor to ensure compliance before and after the election is made.
If you or your Westchester business are affected by these changes, it is crucial to execute income tax mitigation planning strategies to minimize the impact of these changes on your current and future wealth. Grassi’s tax advisors are highly knowledgeable in New York SALT issues and strategies.
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