New York Provides Optional Employer Compensation Expense Tax Guidance

Guidance on New York’s optional employer compensation expense tax, which is to take effect in 2019, was released July 3 by the state’s Department of Taxation and Finance. The memo released by the Department can be found at https://www.tax.ny.gov/pdf/memos/ecep/m18-1ecep.pdf.

Employers choosing to adopt the tax for 2019 must do so online by December 1, 2018. The levy is to start January 1, 2019, at a rate of 1.5 percent of employees’ compensation that exceeds $40,000. The tax is to increase to 3 percent in 2020 and to 5 percent in 2021.

An employee is subject to the tax if employed in New York, has a base of operations there, or is directed from the city.

Quarterly returns for the new payroll tax are to be filed electronically when withholding tax returns are filed, which is the last day of the month after each quarter. Payments are to be made when withholding payments are made, the department said.

New York was not planning to update its withholding tables to accommodate the payroll tax, but the state Form IT-2104, Employee’s Withholding Allowance Certificate, is to be updated to allow employees to adjust their withholding if the employer elects to pay the payroll tax.

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