On April 9th, 2022, Governor Kathy Hochul signed the state budget bill, setting significant changes into effect. These changes include adjustments to the New York State Pass-through Entity Tax (PTET) for 2022 and the creation of the New York City PTET, which will start for tax year 2023. We also saw tax cuts for middle class income brackets and extended credit programs to lower income filers. In addition, in late August, NYS formally confirmed that federal student loan forgiveness would be non-taxable for state tax returns.

Tax cuts for middle income filers originally scheduled to begin in 2025 have been accelerated to now start in 2023. Rates for married filing jointly for those with income between $27,900 and $161,550 changed from 5.73% to 5.5%, and for income between $161,551 and $323,200 from 6.17% to 6.0%.

Homeowner Tax Rebate Credit (HTRC)

The Homeowner Tax Rebate Credit is a one-year program providing direct property tax relief to about 2.5 million eligible homeowners in 2022, extending the reach of their continuing School Tax Relief (STAR) program. The STAR program issues benefit by a credit in the form of a check, or as an exemption, which is a direct reduction on the school tax bill. Individuals who qualified for a 2022 STAR credit and had income below $250,000 and a school tax liability for the 2022-2023 school year greater than their STAR benefit are eligible. If qualified, NYS automatically sends a check for the amount of the available credit calculated by NYS.  The amount of the credit will be based on where your home is located, how much income you have, and whether you received Enhanced STAR or Basic STAR.

Increased Earned Income Tax Credit

New York State passed legislation that requires child poverty to reduce by 50% over within 10 years, so in October, Gov. Hochul launched the Child Poverty Reduction Advisory Council.One-way the governor is trying to accomplish this is through increased tax credits.  The 2022 budget increased the NYC earned income tax credit increased from 5% to 10%-30% of the federal credit, depending on income. Individuals eligible for the EITC or Empire State child credit in tax year 2021 could also receive an additional Child and Earned Income payments. If qualified, NYS automatically sends a check for the amount of the available credit calculated by NYS.  These one-time payments will be based on the empire state child credit and earned income credit reported on your 2021 New York State tax return.  These additional credits can be anywhere from 25% to 100% of the amount of the credit you received for 2021.  New York State began mailing checks to eligible taxpayers in October 2022.

New York State PTET Update

New York State introduced the “Pass Through Entity Tax (PTET)” in 2021.  PTET allows owners of pass-through entities to work around the federal itemized deduction limitation of $10,000 for state and local taxes on their individual returns, providing a potential tax savings to the individual.

The biggest revision to NYS PTET in 2022 now allows an eligible S Corporation to pay PTET on behalf of eligible resident shareholders based on not only New York sourced income but total income being passed through to the shareholder. Previously, PTET for an S Corporation was only calculated based on NY-sourced income for both resident shareholders and non-resident shareholders. The PTET paid on behalf of non-resident shareholders has not changed and will be based upon their New York State sourced income.  This update expands the tax benefit of the PTET available to S Corporation NYS resident shareholders. 

NYC Catches Up – City PTET into Effect in 2022

The NYC PTET will now allow NYC residents to receive the same benefits to city taxes paid on pass-through income that were available for state taxes, and also receive a federal tax dedcution.

To qualify for City PTET, the entity must have elected into the State PTET. In addition, an electing S Corporation must be composed of NYC-resident shareholders, and partnerships must have at least one NYC resident partner or member.

Small Business Tax Relief – An Increased NYS Small Business Subtraction Modification

The Small Business Subtraction Modification began in 2014, and provided a 3% deduction to sole proprietors with less than $250,000 in business income. As of 2022, New York has increased the deduction to 15% and expanded the modification to include S-Corps and partnerships that have less than $250,000 in income and less than $1,500,000 in New York state-sourced receipts. In addition to this criteria, an individual owning more than one pass-through entity must have a combined income below the $250,000 limit.

There are a number of other New York State credits and incentives that have been expanded or extended for the 2022 -2023 tax years, continuing forward.  If you have, any question about the credits or incentives listed above or any additional credits or incentives please consult one of our tax professional at Dermody, Burke, and Brown, CPAS, LLC.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.