10 Things You Should Know About the Tax Law in New York City
The new tax law, combined with the ongoing coronavirus pandemic, has left many Americans wondering how to handle their finances.
From what you can deduct to how you benefit from charitable donations, our guide will help you navigate the new tax code.
Keep reading to learn more!
1. They Have Their Own Local Income Tax
Taxpayers who reside within the city limits must pay this local income tax, even if they are already paying federal and state income taxes. While this tax does not apply to individuals who don’t earn wages within the five boroughs, it does impact those who do.
In terms of filing, you can do this by using Form 1127 which should be sent along with filing a federal return. It is important to note that the income that is subject to New York City tax is money earned in NYC, so if income is earned in multiple locations, taxpayers need to calculate their applicable tax rate.
2. The Local Income Tax Rate Ranges from 3.078% to 3.876%
In New York City, the local tax rate ranges from 3.078% to 3.876% depending on the income of the individual. For example, those with higher incomes pay a higher local tax rate. Additionally, the state of New York requires all residents to pay either state or city taxes.
Those who make over $120,000 must also pay an additional special tax. Many businesses must also pay city taxes, however, certain non-profits and government agencies are exempt from these taxes.
3. The City Imposes a Sales Tax of 8.875%
It is important to know that the sales tax applies to all products and services, with a few exceptions such as enterprise zone, strip clubs, parking, and taxi services. All New York City merchants must collect and remit the proper sales tax, and the tax must include in a service or product’s final price to the consumer.
There are also taxes imposed for product-specific items that are subject to additional fees. Examples of such items include clothing and footwear, prepared food and beverages, or household furnishings and appliances.
4. Their Property Taxes Are among the Highest in the Country
The City’s tax rate varies according to the neighborhood and the size of the property. In most cases, it is significantly higher than the national average. The tax base is determined by the assessed value of the property, which is calculated according to a number of factors such as size, location, and condition.
Taxpayers should also be aware of a number of deductions and credits that can be taken advantage of when filing their tax returns. It is important to keep up to date on changes to the tax code in order to address your unfiled tax returns.
5. Mansion Tax on the Sale of Residential Properties
New York City residents should be aware of the mansion tax associated with the sale of residential properties. The tax was put into effect in 2019 and requires sellers of properties valued at more than $1 million to pay a 1% tax on the sale price of the property.
This tax applies to both co-op and condominium sales and if the buyer is a real estate entity the tax increases to 1.425%. It is important to note that the tax is based on the purchase price and must be paid at the closing of the sale. The seller typically covers the cost of this tax and any applicable penalties or interest.
6. Hotel Room Occupancy Tax
When occupying a hotel room in New York City, the tax law requires guests to pay a hotel room occupancy tax. Current levels range from 3.50% up to as much as 14.75%, depending on the locale of the hotel. In addition, a New York State sales tax of 4% also applies.
For customers without credit privileges, the hotel is obligated to require payment of the tax directly at the time of room occupancy. Hotels may choose to collect lower levels of hotel occupancy tax to competitively price the room.
7. Certain Goods and Services Are Exempt From the Sales Tax
The Tax Law in New York City includes exceptions for certain goods and services exempt from the sales tax. This includes:
- Food and drink for home consumption
- Unprepared food items
- Nonprescription drugs
- Items used for religious worship
- Clothing items that cost less than $110
- Educational expenses
- Healthcare services
- Trade-in and repair of tangible personal property
- Sale of certain coins and stamps
Additionally, a variety of services related to transportation, entertainment, construction, and nursing and home care services are also tax-exempt.
8. Property Tax Rates Depends on the Assessed Property Value
New Yorkers should be aware that property tax rates in New York City depend on the assessed value set by the NYC Department of Finance. Property taxes depend on the assessed value of a property, and this amount can fluctuate from year to year.
For example, if the value of a property rises, the associated property tax rate may go up. This assessment is done to ensure that all homeowners are paying the same tax rate for their property.
It is important for New Yorkers to keep abreast of property tax rate changes, as a property owner’s tax burden may increase or decrease based on these changes.
9. Offers Tax Incentives and Credits
The New York City Tax Law offers tax incentives and credits for certain energy-efficient projects such as the NYCEEC Financing Program. This program, which is primarily for residential properties, offers to finance energy-efficient projects and equipment purchases.
The program encourages households to invest in additional energy-efficient measures like solar panels, energy-efficient roofs, heating, cooling, and other energy-saving measures by offering incentives and credits to lower their out-of-pocket cost.
10. ICAP Program for Property Tax Abatement
New York City residents should be aware of the ICAP program which stands for Industrial Commercial Abatement Program. The program provides property tax abatement for qualifying commercial and industrial buildings.
The amount of the abatement depends on the amount of tax assessed and the number of years of ownership. Qualifying buildings can receive up to 90% abatement for up to eight years. In addition to the ICAP program, businesses located in New York City may be able to benefit from other tax breaks and grants through specific laws.
Learn More about Tax Law Today
New York City’s Tax Law has various nuances to stay updated on. All businesses and residents should continue to learn the tax laws to ensure they are legally abiding.
Ready to get to know the New York City Tax Law? Take ownership of your taxes and learn now.
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