At the Capitol: Explaining the payroll tax

NY Capitol News

The New York State budget has been signed into law, but many are wondering how the new state payroll tax works and how it will affect New Yorkers’ paychecks.

Once the payroll tax is implemented, employees could see a change in their paycheck.

“We had to restructure our tax code to avoid the attack,” Gov. Andrew Cuomo said.

Cuomo said the attack was the decision on the federal level to reduce state and local tax deductions, and the way to get around it is to implement a new tax code, the payroll tax.

“What we’re doing is looking at shifting a tax from the individual employees to the employer,” Bob Rock said.

Rock is a business lawyer and partner at Tully Rinckey who appeared on NEWS10 ABC’s Empire State Weekly show. He explained how the switch to a payroll tax works. If the company you work for chooses to opt in, they will pay your taxes for you, but your salary will be reduced to reflect the amount being paid.

As a result, you as an employee will be making less in your overall wage but still take home the same amount.

“The net at the end of the day should be the same, but no one likes to take a pay cut,” Rock said.

But not all employers are fully on board.

“The biggest issue is is it worth their while?” Ken Pokalsky, VP of the Business Council of New York State, asked. “Is it going to be a big enough benefit to a large enough share of employees to make it worthwhile to make the switch?”

Besides just the complexity of it all, a change in salary could affect 401Ks, pensions and future employment.

“We’ve talked to a lot of our member employers over the last four months, and we have yet to hear one commit to this,” Pokalsky said.

Employers would have until December 1 to opt into the payroll tax for next year. There is still no word if the IRS would allow for the change in the tax code.

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