The registration period for businesses to enroll in New York’s voluntary payroll tax program has opened, but few employers are likely to opt in for 2019.
The tax, enacted as a workaround to the federal limit on state and local tax deductions, has created uncertainty for employers, who still don’t fully understand the unintended consequences, Kenneth Pokalsky, vice president of the Business Council of New York State, told Bloomberg Tax Oct. 24.
“It’s like jumping off a ledge into the dark,” he said. “A lot of employers say ‘there’s a lot of concerns and no compelling reason for me to enter in.’”
New York hoped the voluntary payroll tax and a new charitable contribution credit would protect its taxpayers from the 2017 federal tax law’s (Pub. L. No. 115-97) $10,000 federal cap on the state and local tax deduction. Taxpayers, however, could be left holding the bag if few employers opt in and the Internal Revenue Service’s proposed limits on the charitable deduction are upheld.
“I have not heard from a member who is opting in yet,” Pokalsky said. “I think there will probably be some.”
The Business Council is the leading business organization in the state and has 2,400 member companies.
Peter L. Faber, a corporate tax attorney and partner at McDermott, Will & Emery, said he was unaware of any employers opting into the program.
“People with whom I have talked have said that it would be administratively burdensome and expensive and would not be appreciated by employees,” he told Bloomberg Tax in an Oct. 24 email.
Employers have until Dec. 1 to register and enroll in the program for 2019. If they do, they will pay the tax on payroll expenses that exceed $40,000 per year for employees in New York state. The tax is 1.5 percent for 2019 and would be paid quarterly when withholding taxes are due.
Employees would receive a tax credit for the amount paid. They would, therefore, have a way to mitigate the impact of the SALT deduction because their personal income tax liability would be lower.
Pokalsky said the tax is particularly complicated for employers with out-of-state employees because those employees may not receive the benefit of the credit on their tax returns.
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