New York lawmakers restructure tax code in state budget in response to federal changes

Liz Young
New York Governor Andrew Cuomo
Getty Images

Employers will have the option of a new state payroll tax under the state budget passed last week.

The payroll tax, called the "employer compensation expense program," is among a series of changes designed to prevent New Yorkers from seeing their taxes increase as a result of the federal tax reform.

Business organization leaders, such as Mike Durant, the state director for the National Federation of Independent Business, have said their members aren't particularly interested in the payroll tax option.

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"In talking to members as this conversation went along, they're not enamored with this idea," Durant has told the Business Review. He represents about 11,000 small and independent businesses in the state. "Most small businesses are getting a tax cut through the federal plan. I think they look at this, optional or not, that the stage is set for the state of New York to raise taxes on small businesses in the future."

The $168 billion budget also includes decoupling the state's tax code from the federal code, as well as creating two state-operated charitable funds that will allow taxpayers the option to claim education and health care contributions as deductions on their tax returns.

State Senate and Assembly legislators passed the bills late Friday night into Saturday morning.

Gov. Andrew Cuomo proposed the tax restructuring in response to a new federal cap on the deduction for state and local income taxes at $10,000, a change that would hit wealthy earners in high-tax states like New York particularly hard.

The average state and local income tax deduction claimed by New Yorkers had been more than $22,000.

"Their federal tax reform bill, that SALT act, was an arrow aimed at the economic heart of the state of New York," Cuomo told reporters at a press conference Friday at the state Capitol, after the budget was finalized.

Read more about how state's tax code changes will work here.