parkerpyne t1_j9dxz3l wrote on February 21, 2023 at 5:25 AM

Reply to comment by G4M35 in PSA: New York State tax brackets are not what they seem by PostPostMinimalist

So what I find is this claim here: "New York is one of only two (2) states that have a “tax benefit recapture”. This is where the top tax rate of 10.90% is applied to all your income if it exceeds the top tax bracket (the other state is Connecticut)."

However, I can't easily find that corroborated in the instructions for form IT-201.

I always knew that NYC income tax is essentially highway robbery since you pay on your whole income with no deductions whatsoever. I was however under the assumption so far that I'd be paying state income tax according to usual marginal tax rate rules.

I am looking at my 2022 W-2 right now, and the numbers don't make any sense to be frank. It comes out to an effective tax rate of 7.37% which doesn't correspond to any of NY State's marginal tax rates but is at the same time higher than the marginal tax rate I should be paying (which in 2021 was 6.25%). I didn't include earned interest and dividends but I somehow doubt they account for over a percentage point in this discrepancy.

These numbers don't make any sense to me.

EDIT: Alright, I think I've figured it out. The effective tax rate was not in fact 7.37% because I didn't consider what NY State had paid me back last year. Somewhere in the vicinity of $5k as I recall which would put the effective tax rate below the marginal and refute OP's claim that the marginal tax rate is the effective one above certain incomes.

PostPostMinimalist OP t1_j9ever3 wrote on February 21, 2023 at 12:31 PM

As for the top rate claim, that one is spelled out the most explicitly. Look at tax computation worksheet 6.

Are you just considering taxable income? Are you less than 50k above the start of a new bracket (and a bit different single vs married).

parkerpyne t1_j9f32aq wrote on February 21, 2023 at 1:41 PM

>As for the top rate claim, that one is spelled out the most explicitly. Look at tax computation worksheet 6.

Well, sure: "If your New York adjusted gross income (line 33) is more than $25,000,000...". While not poor, I am still a wee bit away from that.

The numbers aside, I do find it strange that at this income state tax becomes flat at the marginal rate.

>Are you less than 50k above the start of a new bracket (and a bit different single vs married).

It's more than 50k in my case. I actually just noticed that yesterday I was looking at the married table rather than the one for head of household. That only changes where each bracket begins and ends however. My effective tax rate in NY still does not correspond to any of those rates and is below the marginal one.

You seem to have done some research on how it works but I remain doubtful that what you were saying is true. I am looking at tax computation worksheet 2 (from https://www.tax.ny.gov/forms/html-instructions/2022/it/it203i-2022.htm#tax-computation) which makes references to recapture base amount and incremental benefit amount. I suspect these numbers are used as a sort of mini-progression within the marginal bracket of 6.25% whereby your taxable income gets adjusted a bit depending on how much your income was above $161,500. That multiplier from line 8 is at most 1 which means that the taxable income will not get reduced if your income is $50k or more above the entry amount for that bracket.

If it was really as simple as you said (above $107,650 you pay a flat tax on all income) then this convoluted calculation wouldn't be required.

PostPostMinimalist OP t1_j9f576d wrote on February 21, 2023 at 1:59 PM

As I said in the original post, there is a sliding scale above each bracket for the next $50k where you move up to full marginal tax at the next bracket. That’s why it needs to be complicated, because within that $50k it isn’t so simple.

Also where are you getting the effective rate from? The W2 doesn’t show what you actually owe, just what was withheld, so who is telling you?

The numbers appear as magic, but they aren’t, they are calculated exactly to achieve this effect. I know because I checked explicitly.