By Howard S. Krooks, Esq., CELA, CAP, Partner, Elder Law Associates PA
In response to the devastating effects of Covid-19 on the state economy, New York Gov. Andrew Cuomo signed a bill on April 19, 2021, that raises taxes for high-income New Yorkers and cuts taxes for middle-income taxpayers. According to Cuomo, as he signed the legislation into law, “We have to help the middle class, especially at this time. And the best way we can help them is through lower taxes.” The new tax plan is expected to raise about $4.3 billion per year for New York.
Tax Cut for Middle-Income Earners
The $2.2 billion tax package that affects nearly 5 million New Yorkers was part of the $212 billion budget proposal passed last month by the state Senate and Assembly.
For people earning between $21,400 and $80,650, the state income tax rate has been cut about 2%, from 6.09% to 5.97%. For those people who make between $80,650 and $215,400, the rate will drop from 6.41% to 6.33%.
The question remains to be seen if the 2% tax cut will translate into people going out and spending more money, and thus spurring on the economy, as the plan intends.
Tax Increase for Millionaires and Corporations
Under the new state tax plan, millionaires and corporations will see their taxes increase. The tax rate for an individual making $1 million annually ($2 million for a couple) will increase from 8.82% to 9.65%. The state has created two new tax brackets for the highest earners. The personal income tax rate for individuals earning $5 million per year will be 10.3% and for those making $25 million per year, the rate will be 10.9%.
Corporations also will need to pony up, with the new business income tax rate increasing from 6.5% to 7.25% for three years (through 2023) for those businesses with income over $5 million.
The new state tax on millionaires combined with New York City taxes means that New York City millionaires will now pay the highest taxes in the country, with the combined rates between 13.5 to 14.8%. The tax hikes are retroactive to the beginning of 2021 and are scheduled to end in 2027.
According to Gov. Cuomo, the tax increases in his plan are expected to be offset by a repeal of the federal cap on state and local tax deductions (SALT), which would effectively lower the net taxes paid by the highest earners. “SALT repeal is so powerful, it would lower the effective tax rate on New Yorkers, highest payers, by 37 percent,” Cuomo said.
What Should High Earners Do?
If you fall into this higher income category, don’t wait until the end of the year to make sure you’ve paid enough in taxes. If you underpay, you could receive a tax bill with penalties and interest due at the end of the year.
Some high-income New Yorkers may be considering a move to a state with lower tax liability, like Florida, that has zero state income taxes. However, should Floridians brace for an influx of New Yorkers seeking a permanent tax haven? Maybe or maybe not. There are a lot of considerations in making such a move.
If you’d like to discuss the benefits of becoming a permanent Florida resident or want to find out how a move could affect your long-term care planning, Medicaid planning or your estate plan, you need look no further than Elder Law Associates PA Partner Howard S. Krooks, Esq., CELA, CAP. He is admitted to practice in both New York and Florida and works with many New Yorkers who have decided to “take the plunge” in the Sunshine State. For more about how he can help, please read our New York-Florida Connection page on our website, or contact us at (561) 750-3850 or 1-800-ELDERLAW for more informatiion.