Compliance Central

Recent legislation has introduced changes to the New York City (NYC) personal income tax rates of employees with taxable income of more than $500,000 who are subject to withholding.  New rules for computing the amount of personal income tax withheld are effective for payrolls completed on or after September 1, 2010.  These changes will only affect New York City. The New York State and Yonkers tax rates have not changed.

NYC Regular Withholding Rates

For regular wages, there are revised computation rules for determining the amount of New York City personal income tax to be withheld.  For the three different methods of calculation, the rules are as follows:

• For Method I, Wage bracket tables: Continue to use the New York City tables contained in Publication NYS-50-T.

• For Method II, Exact Calculation Method:  Use the revised exact calculation method(s) in Publication NYS-50-T.2.

• For dollar-to-dollar withholding tables: Continue to use the dollar-to-dollar withholding tables for New York City contained in Publication NYS-50-T.

NYC Supplemental Withholding Rate

For any supplemental wages (bonuses, commissions, overtime pay, etc.) paid to New York City employees, the withholding tax percentage will also increase to 4.75% from 4.0% on September 1st. 

As New York State and Yonkers are not affected by the new rules, the calculation methods in Publications NYS-50-T and NYS-50-T.1 should continue to be used to determine withholding for these taxes. 

Learn more at www.tax.state.ny.us or contact the NY Department of Taxation and Finance at 518-485-6654 or 877-698-2910 for further information.

As part of H.R. 1586 (the Education, Jobs and Medicaid Assistance Act), the bill that President Obama has recently signed into law, the Advance Earned Income Tax Credit (AEITC) will be repealed effective for all tax years beginning after December 31, 2010. 

Background

The Earned Income Tax Credit (EITC) was designed to supplement the earnings of low income workers by allowing tax credits to those who qualify.  Qualified employees claim the credit as a lump sum when they file their federal income tax return.  Employees who are eligible for the EITC and have one qualifying child may choose to receive their credit throughout the year as smaller payments added to each paycheck.  Receiving the payments in advance is an unpopular choice with taxpayers and is being repealed in 2011.  The EITC program will continue to operate, but qualified workers must claim the credit by filing a tax return.

An Underutilized Program

The decision to remove the AEITC program is based on recent findings that it is underutilized by eligible employees and abused by employers and employees alike.  Government research suggests that only 3% of qualified employees participate in the program and that 20% of claimants have invalid Social Security Numbers.  Thought of as a wasteful program, eliminating the AEITC will save the taxpayer $1.1 billion over the next ten years without affecting the eligibility of low-income employees and their ability to still claim the credit.

Source:  http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1586: