Tax Reform Friday: New York Budget Bill Addresses Some Aspects of Federal Tax Reform

While Gov. Andrew M. Cuomo (D) has been very vocal about the negative impact of federal tax reform on New Yorkers, and further proposed a budget that was responsive to his position, the legislative response thus far could be characterized as somewhat muted. The most prominent responses to federal tax reform in the 2018-19 budget bill—S7509, enacted April 12, 2018—are provisions concerning treatment of repatriated foreign income, payroll taxes, and charitable contributions.

Pub. L. No. 115-97, the federal tax act of 2017, contains so-called repatriation provisions that essentially capture certain foreign earnings in taxable income that were excluded under the prior tax regime. Provisions in the New York budget bill maintain that exclusion by explicitly exempting certain foreign income that is now captured in federal gross income. The exempted income must not include investment income, however.

The budget bill also establishes the Employer Compensation Expense Program, under which employers may elect to be subject to a tax on their payroll expense paid to covered employees that exceeds $40,000. In 2019, the tax is 1.5 percent of the expense. In 2020, the tax is 3 percent, and in 2021 and thereafter, the tax is 5 percent. This will benefit individual taxpayers by allowing covered employees a credit of the tax paid on their personal income tax. Employers are not able to deduct the tax from an employee’s income. The credit will be calculated based on the individual employee’s wages and other compensation exceeding $40,000.

The bill also preserves the New York child tax credit at its pre-federal tax reform level. The credit allowed is equal to $100 times the number of qualifying children or the applicable percentage of the federal child tax credit allowed to the taxpayer, whichever is greater. However, the New York statute was modified to specify that all references to the Internal Revenue Code are a reference to the section as it existed immediately prior to the enactment of Pub. L. No. 115-97.

Finally, the bill creates a New York Charitable Gifts Trust Fund, and authorizes local governments to do the same, that will accept donations for improving health care and public education in the state. Taxpayers who donate to the fund may claim deductions on the federal and state tax returns for the tax year of their donation, and further, may claim a state deduction equal to 85 percent of the donation in the tax year following the donation.

For further discussion of state conformity to federal tax reform, check out Bloomberg Tax’s “Tax Reform Friday” series, posted every Friday.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will New York enact more legislation that is responsive to federal tax reform?

For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and impending changes, with pertinent cites attached.

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