SALT Talk: New York Fires Its Latest Warning Shot at the TCJA

SALT Chat

07.16.18 | SALT Chat

Warning shots are sent as a way to persuade a potential enemy to withdraw from its position and cease further threatening actions.  Since the passage of the Federal Tax Cuts and Jobs Act (TCJA) it is getting difficult to follow who fired last.  The virtual elimination of the itemized deduction for state and local income and property taxes clearly has created the biggest display of fireworks between the federal government and high tax states.

How appropriate that on July 3, while most of us were leaving early for the Independence Day holiday, New York State released guidance on the implementation of the Employer Compensation Expense Tax (ECET).  The ECET was created as a workaround to the limited SALT deduction by allowing employers to elect to pay a payroll tax expense for employees. 

Phased-in over a three-year period, (1.5% in 2019, 3% in 2020, and 5% in 2021 and thereafter) employees receive a credit on their New York personal income taxes for the ECET paid by the employer.

The guidance makes clear that employers must elect to participate in the ECET by December 1 in order to participate the following year.  (So for 2019, employers must elect by December 1, 2018.)  While seeking to help employees minimize their overall tax liability is always a good idea, employers must consider many factors before electing.  These include additional record-keeping requirements, penalty and interest if estimates are not made on a timely basis and of course, the IRS warning that all schemes to circumvent the TCJA will be summarily disregarded.  The choice to elect or not is not an easy one and should be discussed carefully with employees and their representatives as well as your advisor. If I have raised questions or concerns, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne K. Berkowitz, CPA, J.D., LL.M., a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises clients on the unique requirements of governments and municipalities across the nation.