Cuomo says the SALT deduction cap could rob the state’s coffers if residents pressure local lawmakers to lower taxes, or worse, move out of the state to lower their taxes -- ultimately calling into question New York’s long-term viability. He’s said it would raise New Yorkers’ total tax burden by at least 20 percent.
“I’m afraid we’re at that tipping point,’’ Cuomo said earlier this month. “There is nothing more serious than this.’’
Top earners in Manhattan, or New York County -- those earning at least $200,000 and up into the millions of dollars -- paid an average of $144,189 in SALT in 2016, according to IRS data, so being able to write off less than 10 percent of that would be a big, and costly, change.
But the impact will largely be felt by those making $1 million or more, accountants say.
The reason is that 74 percent of those top earners fell under the AMT, a backstop to prevent the wealthy from whittling down their tax bill by piling up deductions and credits. So the fact that they now can write off up to $10,000 of their SALT payments reduces their overall tax burden and effectively gives them a tax break they didn’t have before.
This year is the first filing season under the GOP tax law overhaul, which cut tax rates for all income levels. Those reductions were partially offset by curbing some deductions and exemptions, leading to a wide array of outcomes for taxpayers depending on their personal situations.
The law also included several changes that disproportionately benefit the wealthy. The law cut the top tax rate to 37 percent from 39.6 percent. And it offered a new 20 percent deduction for owners of partnerships and limited liability companies and reduced the number of people subject to the estate tax.
The tax law also largely scaled back the AMT. About 62 percent of people making between $500,000 and $1,000,000 paid the AMT before this year. Now only about 2 percent of those filers will have to pay the AMT, according to estimates from the Urban-Brookings Tax Policy Center.
Tax accountants are finding that many of the people who used to use the AMT are using SALT deductions, even though limited, to their benefit.
For example, a taxpayer who made $200,000 and had $37,000 in SALT payments owed $44,760 in federal taxes under the AMT before the tax overhaul. This year, that same taxpayer would now be able to deduct $10,000 of his or her SALT payments and the federal tax bill would go down by about $3,000, to $41,715, according to Steve Rossman, a shareholder at accounting firm Drucker & Scaccetti in Philadelphia.