NYC Income Tax Change Means Higher Bills For Top Earners

by Mike Godfrey, Tax-News.com, Washington

13 May 2003

A provision in the new income tax surcharge law for New York City residents known as 'tax benefit recapture' could lead to many high earners paying much more tax than anticipated, if passed into law.

The measure will effectively abolish the income tax margins for top earners, meaning they will pay the proposed 4.25% top rate of tax on their entire earnings. At present, the city surcharge is levied at 3.648%, but only on income above the $90,000 threshold.

According to calculations by New York City's Independent Budget Office, for a married couple with $200,000 in taxable income this could mean an increased tax bill of nearly $1,500 per year. Under the current system, the couple would pay $7,084 in city surcharges. If passed, the new proposal would result in a tax bill of $8,500.

For those with a taxable income above $500,000 per year, a higher rate of 4.45% will apply.

Whilst the state legislature has approved the change, Governor George Pataki has threatened to veto the measure. However, senior lawmakers in the chamber believe that they have the means to overrule the governor's veto. If this turns out to be the case, the new law will come into effect in July of this year.

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