By Hank Russell
The state comptroller recently released a new report which he says the latest federal tax laws will disproportionately benefit the higher-income individuals at the expense of the lower and middle classes.
State Comptroller Thomas P. DiNapoli analyzed the federal tax provisions at the beginning of July and how they may impact New Yorkers. While the bill made permanent many tax changes included in the 2017 Tax Cuts and Jobs Act (TCJA), it includes new tax breaks for seniors and the working class that are largely temporary, according to DiNapoli’s report. These minimal tax benefits, along with the significant cuts in safety net spending included in the legislation, will put a larger burden on New Yorkers trying to make ends meet.
“Many of the tax benefits in the federal legislation passed in Washington this summer will continue to go to those with higher incomes,” DiNapoli said. “This was a lost opportunity to improve the tax code; instead, the new federal law adds complexity and creates inequities. Low-and middle-income New Yorkers will see few long-term benefits while bearing most of the burden of the bill’s significant spending cuts to vital programs.”
The TCJA included provisions, such as a higher standard deduction and an increased child tax credit, that alleviated the federal tax burden for many New Yorkers, DiNapoli’s report said. The new federal law permanently extended and enhanced many of these provisions.
The Joint Committee on Taxation (JCT) estimates that, under the new law, over one-third of the net tax reductions in calendar year 2027 will be for those with incomes over $500,000, more than 10 percentage points higher than under the TCJA. The JCT also estimates that the enacted changes will reduce federal revenues by more than $5.1 trillion over the next ten years, which may adversely impact the distribution of vital federal funds to states and localities.
The newly enacted provisions, reportedly aimed at helping working-class Americans, are temporary and limited in scope, according to the report. New deductions for seniors, tip income, overtime pay, and interest on new car loans are in effect only for tax years 2025 to 2028, and are limited to taxpayers with Social Security numbers.
These deductions target a small portion of the population or treat taxpayers with similar wages or even in the same business unequally, the report stated. For example, approximately 6% of the jobs in New York are in occupations, such as wait staff, bartenders, personal care workers, delivery drivers and hotel staff, that regularly and customarily receive tips. As a result, parking lot and coat room attendants, who will benefit from the deduction for tipped income, could potentially have their federal tax burden eliminated while childcare workers and home health aides who generally do not receive tips will not.
In 2031, when these temporary provisions expire, JCT estimates those with incomes of less than $30,000 will see their federal tax liability increase.
The new federal law permanently limits the itemized deduction for state and local taxes (SALT) paid to $10,000. For tax year 2025, the limit is increased to $40,000 for taxpayers with incomes up to $500,000; the limit and income threshold are further increased by 1% annually in tax years 2026 to 2029. In 2030, the limit reverts to $10,000 for all filers.
In tax year 2023, more than 1.5 million New York residents itemized deductions and included deductions for state and local taxes paid under the State personal income tax; 76% reported tax payments in excess of the $10,000 federal cap. Of these taxpayers, nearly all with incomes under $100,000 will be able to fully deduct their SALT payments under the temporary, higher limit, and over 87% of those with incomes between $100,000 and $500,000 will as well. However, for over 445,000 of these filers, the higher federal standard deduction will likely provide a larger tax benefit.
Long Island Life & Politics reached out to Congressman Nick LaLota (R-Rocky Point) and Andrew Garbarino (R-Patchogue), both of whom pushed for higher SALT deductions as a member and co-chair of the SALT Caucus, respectively. LILP did not hear back as of press time.
Based on the comptroller’s analysis, taxpayers with children will also see limited relief from the increase in the child tax credit to $2,200 per child starting in tax year 2025. The credit will also be indexed to inflation after 2025. There is also a refundable portion of the tax credit, which was reduced under the new law and will no longer be indexed to inflation, reducing the benefit for lower-income taxpayers. In tax year 2022, nearly 2.1 million New York taxpayers claimed $6.1 billion in federal child tax credits, $1.8 billion of which was refundable, according to the report.
For taxpayers who pay for childcare, the nonrefundable credit as a share of these expenses was increased for those with incomes less than $105,000. However, the maximum amount of expenses eligible for the credit remains unchanged at $3,000 for one child and $6,000 for two or more, failing to address the rising cost of childcare for most families. The average cost of childcare for one child in New York in 2023 was nearly five times the $3,000 cap allowed for the credit, based on data from DiNapoli. In tax year 2023, nearly 310,000 resident New York taxpayers claimed the federal child and dependent care credit, just 3.3% of total filers. The largest number of claimants were those with incomes over $105,000.
With the passage of the TCJA, the state chose to decouple the tax law from many of the provisions that impact either New York taxpayers or tax collections. As a result, provisions in the new federal law that made policies in the TCJA permanent are not expected to have a revenue impact. However, if the state does not pass legislation to decouple those provisions that were not included as part of the TCJA, it could affect New York collections as early as State Fiscal Year 2026-27 when taxpayers file their annual tax year 2025 returns.
These provisions include the new “above-the-line” deductions for overtime pay, tip income, and interest on new car loans, according to the report. While the change in the child tax credit is not expected to impact New York’s tax collections because of previous legislation that de-coupled it from federal provisions, the child and dependent care credit is calculated as a percentage of the federal credit, which could cause a decline in state revenues.