DiNapoli: New Tax Rules Aid High Earners Most
A new report by State Comptroller Thomas P. DiNapoli analyzed the federal tax provisions enacted under Public Law No: 119-21 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 con tinue 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.”
SUMMARY
The TCJA included provisions, such as a higher standard deduction and increased child tax credit, that alleviated the federal tax burden for many New Yorkers. The new federal law permanently extended and enhanced many of these provisions.
The Joint Committee on Taxa tion (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 work ing class Americans are tempo rary and limited in scope. 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 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 unequal ly. 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 elimi nated 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.
SALT DEDUCTION LIFTED TEMPORARILY
The new federal law permanent ly 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 item ized deductions and included deductions for state and local taxes paid under the State personal income tax; 76% reported tax pay ments in excess of the $10,000 fed eral cap. Of these taxpayers, nearly all with incomes under $100,000 will be able to fully deduct their SALT payments under the tempo rary, 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.