Tax Reform Update: Fiscal Year 2019 NYS Budget Bill

In early April, Governor Cuomo announced that New York lawmakers passed the $168.3 billion Fiscal Year 2019 Budget. The budget includes income tax provisions that will take effect beginning in tax year 2019.

One of the most sizeable changes includes the creation of a new Employer Compensation Expense Tax ("ECET") system. The ECET is a direct response to the federal $10,000 limit on the deductibility of state and local taxes included in the Tax Cuts and Jobs Act.

The ECET is voluntary for employers and applies to employees making more than $40,000 annually. The intention of the ECET is to reduce employees' New York State income tax burden, since the deduction is limited at the federal level; it effectively lowers employees' federal taxable wages while keeping employees' take home pay the same. This system will be phased in over three years beginning on January 1, 2019. The ECET will be imposed at a 1.5 percent rate in 2019, a 3 percent rate in 2020, and a 5 percent rate in 2021 and thereafter. Individuals employed by a company that elects to utilize the ECET system will receive a tax credit for the ECET tax paid by their employers.

This program is optional for employers. However, in order to participate, employers would need to opt-in to the ECET by December 1 of the preceding calendar year. So, for tax year 2019, the election would need to be made by December 1, 2018; no immediate decision is necessary.

At this time, it is unclear whether there will be a federal challenge to the new ECET system. We are monitoring the situation closely and will keep you informed on any additional information you will need to make decisions prior to the December 1, 2018 deadline.

Very truly yours,

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