by | GOVERNMENT, NEW YORK, TAXES
Everyone knows about withholding—it’s the money taken out of our paycheck. It is an attempt bythe government, on a pay-as-you-go basis, to collect from you over the course of the year, the amount of tax you would owe for that year.
The various taxing authorities provide specific rules to employers as to how to withhold on regularpaychecks. There are special rules or withholding on bonuses, and other forms of pay (stock option exercises, taxable fringe benefits, etc.) that are over and above regular pay. Commonly, withholding on bonuses are at a fixed statutory rate, normally near the maximum tax bracket of the jurisdiction.
But during the Cuomo years, NY State decided that they could ease their annual budget problems by requiring withholding on bonuses and special payments at a rate approximately 1/2% higher thanthat maximum tax bracket. For those with large bonusesthis could commonly lead to large refunds at tax filing time, but in general amounts tended to be small and no major aberration results.
For those employers paying very large bonuses and/or special payments, it is not uncommon foremployers to reduce the withholding so that withholding actually approximates the employees realtax obligation. After all, the objective of withholding is to have your liability paid on an ongoingbasis.
But apparently NY State has lost sight of this. It is spending our tax dollars to send examiners into the field in order to go after those who are trying to withhold the correct amount of tax.
In a case with which I am familiar, the State Department of Taxation is attempting to fine an employee for not withholding taxes at levels that would have caused the taxpayer to have a $300,000 overpayment. This is not pay-as-you-go, this is extortion pure and simple.
Whose money is it anyway?
by | FREEDOM, GOVERNMENT, TAXES
David and Ruby had a once in a lifetime windfall earning themselves a $600,000 long term capital gain. When I told them that their federal tax liability on this gain was $100,000 they accepted this as the price ofliving in the U.S. But when I told them that their NY State and City tax on this gain was $80,000 they were dumbfounded. After all, David said, wasn’t the NY State and City tax usually 1/3 or less of the federal tax?
Yes usually. But NY State and City have been taking advantage of its most productive residents in a most underhanded way. Agricultural states give benefits to their farmers, and oil states give benefits to their producers, but NY State and City gouge their successful Wall Street investors.
When in 2003, Congress reduced the maximum on capital gains and qualified dividends from 35% to 15%, this portended a huge windfall for the securities industry so much of which is located – and pays huge taxes to – the State and City of New York.
But in (in) actions of unfathomable and irresponsible greed, neither the State nor the City legislatures made any corresponding reductions in their tax rates. Unfathomable because it led to the ridiculous relationship that David and Ruby experienced causing them to wonder if they should continue to stay in New York. Irresponsible in that it accelerated the move of the securities industry out of New York.
Although it’s true that New York securities industry profits are now higher than ever before, it is happening despite a steadily decreasing portion of this industry operating from New York. And when the industry returns to more normal time, we will sorely miss the business that was chased away by New York’s anti-securities industry tax policy.
NY’s US Senators and Congressmen decried (and voted against) the tax rate cuts on capital gains and dividends that did so much for Wall Street and the jobs it creates. The rate cuts passed anyway, leading to prosperity and surplus for the local economy.
However, these cuts are slated to expire in 2010 and New York State’s representatives keep taking about increasing rates on those involved in New York’s bedrock industry.
