CBIZ Marks Paneth | How the Recently Passed New York State Budget Affects Your Income Taxes

On Saturday, April 9, 2022, New York Governor Kathy Hochul enacted the State’s 2022-2023 budget. New York, like most states, is swimming in a cash surplus because of favorable tax collections and federal COVID relief, so this year’s enacted budget doesn’t bring any tax increases. Instead, it provides for tax relief in many areas, including property tax relief.  The following are some of the budget provisions affecting New York State and city income taxes:

Middle Class Tax Cuts

Tax cuts on middle class incomes that were scheduled to take effect in 2025 will now be accelerated to take effect in 2023. The existing 5.9%, 5.97% and 6.33% rates that apply to joint incomes between $27,900 and $323,200 are being cut-back to 5.5% and 6%.

COVID-19 Capital Costs Credit Program for Small Businesses

New York businesses with less than $2.5 million in 2021 gross receipts may apply for and receive credits for “qualified COVID-19 capital costs,” which are generally costs incurred for COVID-19 mitigation, such as erecting physical barriers and sneeze guards, establishing disinfecting stations, or enabling contactless payment systems. The amount of the credit is equal to 50% of the qualified costs incurred, with a minimum credit amount of $1,000 and a maximum credit of $25,000. Credits must be applied for no later than March 31, 2023.

New York State Pass-Through Entity Tax Law Changes

The New York Pass-Through Entity Tax (PTET) is a newer, elective tax that provides a way for smaller businesses (and even some larger ones) in New York to work around the federal law changes that took away previously available tax deductions for state income taxes. Changes introduced by this budget are:

PTE Base of New York “Electing Resident” S Corporations

Where a New York S corporation certifies that it has all New York resident shareholders, it may calculate its New York PTET by including all the resident shareholders’ incomes in the New York PTET base. Presently, only taxable income that is allocated to New York is included in the New York PTET base of a New York S corporation.

Codification of No “Double Add Back”

The statute codifies the New York Department of Taxation and Finance’s position that there is no “double add back” of the New York PTET. The New York tax law has now been changed to make it clear that only the New York PTE credit is added-back to the individual tax base, not the deduction.

New York City PTE Tax

Effective Jan. 1, 2023, partnerships and S corporations that have New York City individual resident partners or shareholders and that elect in for New York State PTE purposes may elect-in to a New York City Pass-Through Entity tax. Only S corporations whose shareholders all live in New York City may elect-in. The tax is imposed at a flat rate of 3.876% on the New York City resident owner’s share of the entity’s income. A corresponding refundable credit is then passed through to the New York City resident owners of the entity.  Interestingly, even partnerships and S corporations that are not conducting any business in the City may make the City PTET election.

State and City PTE Taxes Must Be Added-Back to New York City GCT Base

In what may have been a case of legislative oversight, the New York PTET was originally NOT required to be added-back to the New York City General Corporation Tax (New York City income tax on S corporations) base for tax years beginning in 2021. The budget legislation now requires an add-back for any New York State and City PTE taxes paid by an S corporation. Please note: This provision is retroactive to Jan. 1, 2021. Consequently, S corporations that have already filed their NYC-3L and did not add-back any New York PTET to the city tax base must amend their returns.

Deductions Allowed for Expenses of Cannabis Industry Members

Internal Revenue Code Section 280E disallows the deduction of any expenses incurred by someone engaged in trafficking illegal controlled substances. For years beginning on and after Jan. 1, 2022, New York law allows a subtraction adjustment for expenses incurred related to the production and distribution of adult-use cannabis products.

Digital Gaming Media Production Credit

Businesses and individuals engaged in producing digital gaming media within New York State will be eligible for income tax credits for a portion of their production costs incurred within the State. For costs incurred within the counties in the Metropolitan Commuter Transportation District (MCTD), the credit is 25% of the qualified production costs. For costs incurred within New York State but outside of the MCTD, the credit is 10% of the costs incurred.

Suspension of Motor Fuel Taxes

Beginning June 1 and ending Dec. 31, 2022, New York State will suspend its motor fuel taxes (taxes on gasoline and diesel fuel used in automobiles, trucks, or other vehicles). This is expected to save drivers approximately 16 cents per gallon at the pump.

For More Information

To learn more about how these changes affect your business, please contact a member of our team.

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