Recently, New York State Gov. Andrew Cuomo signed budget bills into law. They will have a major impact on payroll professionals for years to come. Major highlights include a new employer payroll tax and changes regarding conformity to the Internal Revenue Code (IRC) that impacts the state tax treatment of moving expenses [S.B. 7509, L. 2018].
Employer Compensation Expense Tax
A new employer opt-in tax is called the Employer Compensation Expense Tax (ECET). Employers that choose to opt in to the ECET will be subject to a tax on all annual payroll expenses over $40,000 per employee, phased in over three years beginning January 1, 2019. The rates for 2019-2021 are:
- 1.5% for 2019
- 3% for 2020
- 5% for 2021
The state income tax system remains in place. A new tax credit corresponding in value to the ECET will decrease the personal income tax on wages and will ensure that state income tax filers subject to the ECET will not experience a decline in their take-home pay. The deadline for the first annual employer election is December 1, 2018, for the 2019 tax year.
IRC Conformity, Moving Expenses
New York still follows the current version of the IRC. However, the state decouples from the IRC in certain areas in an attempt to avoid effective personal income tax increases for taxpayers.
Effective retroactive to January 1, 2018, qualified moving expense payments and reimbursements are preserved as a fringe benefit not subject to state income tax. New York will follow the IRC in effect immediately prior to the enactment of the Tax Cuts and Jobs Act (Pub. L. 115-97) with regard to these payments.
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