Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report

Is Georgia on national Democrats' minds?

Nov 20, 2019

Latest Episodes

Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report

Toy tariff story

Nov 20, 2019
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace

New York finds a work-around to new tax law and other states may follow

Apr 11, 2018
Share Now on:
HTML EMBED:
COPY
Governor of New York State Andrew Cuomo speaks on stage at the HELP USA 30th Anniversary Event at The Plaza Hotel on March 16, 2017 in New York City.
Monica Schipper/Getty Images

One of the key parts of the 2017 tax law was the reduction of the state and local tax deduction. Filers can’t deduct as much state and local tax as they were before. It’s capped at $10,000.

But states have been trying to find sneaky ways of getting around this. New York recently became the first state to try it. It passed a budget outlining various methods for people to get back the money they would lose from not being able to deduct state taxes on their federal taxes.  

New Yorkers have the highest state tax burden in the country, so many New Yorkers were especially annoyed when the new tax bill said they couldn’t deduct as much of that as they used to come tax time.

“Make no mistake about it. It’s an assault on New York,” says Mark Jaffe, president of the New York Chamber of Commerce. He says it’s unfair that high-income New Yorkers are losing out on the tax deduction. “We give more in taxes to the federal government than we get back,” he says.

New York has come up with a few tricks for its wealthier citizens. And states all over the country are watching to see how they go. The tricks all boil down to this: The state income tax isn’t deductible, so New York is turning it into something that is. 

New York disguised the not very deductible state income tax as a very deductible charitable contribution to a charitable fund — also known as the state of New York. But also, to some actual charities.

“People will be giving to several funds that New York State sets up,” says David Kamin, professor of law at New York University. “One of the funds is a fund toward health. Another is a fund toward elementary and secondary education.”

What was once a not very deductible state income tax is now, magically, a totally deductible charitable contribution.

“This runs into some serious legal headwinds,” says Jared Walczak, senior policy analyst at the Tax Foundation. “Under current law for something to be claimed as a charitable contribution…it has to be genuinely charitable. The state actually needs to benefit. But they are not benefiting. They’re giving it back as a tax credit.”

But wait. Maybe it will work, says Kamin. “This is based off of plans that the IRS has blessed in other states.”

So who knows how that magic trick will go down. The IRS has yet to say anything.

For New York’s next trick, the state will give taxpayers the option to turn their not very deductible income tax into a very deductible payroll tax. This would be paid by the employer.

“The challenge here is not really a legal one,” says Walczak. “You can almost certainly do this.”

Swapping out an income tax for a payroll tax sounds easy but it’s actually super complicated and employers would have to do some accounting gymnastics that would, on paper, lower wages. “This is going to be very difficult. You have contracts, you have labor agreements, you might have minimum wage issues.”

But it’s an idea that needs to be tested, according to Jaffe: “Some businesses will take advantage but not all businesses will.”

Tested it will be. New York has its magic tricks all laid out. The question is: Will the IRS buy it?

Fall of the Berlin Wall
Fall of the Berlin Wall
The financial lessons of Germany's reunification 30 years ago.  
Check Your Balance ™️
Check Your Balance ™️
Personal finance from Marketplace. Where the economy, your personal life and money meet.
How We Survive
How We Survive
Climate change is here. Experts say we need to adapt. This series explores the role of technology in helping humanity weather the changes ahead.