Cuomo Proposes New Payroll Tax as Federal Law Workaround

Gov. Andrew M. Cuomo (D) released the first details of his plan to mitigate the impact of the federal limit on state and local tax deductions today, proposing a 5 percent payroll tax and the creation of two charitable funds. He also called for decoupling the personal income tax code from the federal code, preventing the state from reaping a windfall of $1.5 billion.

More details on the plan will be announced Feb. 15.

The plan is part of a three-pronged strategy by Cuomo to mitigate the increased state and local tax burdens under the 2017 federal tax act (Pub. L. No. 115-97). Under the new law, taxpayers who itemize deductions on their federal return may deduct up to $10,000 in state sales, individual income, and property taxes. Previously the deduction was unlimited.

Cuomo is planning to sue the federal government over the cap along with other governors and has launched a public relations campaign to “repeal and replace” the cap.

The payroll tax will be voluntary for employers and phased in over three years beginning in the 2019 tax year. The plan will be revenue neutral and won’t raise taxes on either employers or employees, state Budget Director Robert F. Mujica told reporters Feb. 12.

Charitable contribution funds will be created to provide funding for the two most expensive parts of the state budget, education and health care. Taxpayers could claim a new tax credit equal to 85 percent of their contributions to the funds. School districts and local governments would also be given the opportunity to create their own charitable funds. Mujica said the state is working on creating an unincorporated business tax, but will not have the details ready in the near future because its “enormously complicated.”