Home to 20 million people — eight million in New York City alone — the State of New York is a very profitable place to do business. Its sprawling population of talented workers draws interest from employers around the globe, with many of the world's largest businesses choosing this US region as their headquarters.
But while there's a treasure-trove of financial opportunities for those in New York, it also means companies must be aware of different New York state taxes and withholding requirements. On top of the federal income taxes, companies and employees need to know the ins and outs of New York taxes at the state and municipal levels.
This article breaks down everything there is to know about the deductions you can, can't, and must be making on New York payrolls.
What are Post-Tax Deductions?
Post-tax deductions are made from an employee's paycheck after they pay personal income taxes. This type of deduction is voluntary and is usually for payments related to healthcare, retirement plans, or other benefits.
For employees, the appeal of post-tax deductions comes down to convenience. Premiums for things they would otherwise pay for themselves are factored into their regular paycheck. The number they see on that bottom line represents the actual amount they're taking home, all while other essential things like insurance and retirement get accounted for.
Employers often use post-tax deductions to subsidize the costs of company perks for staff without actually needing to pay any additional money out-of-pocket. Again, they aren't mandatory to impose, but companies can make them a term of agreement on workers' employment contracts.
New York City Tax Withholding Requirements
The safest way to get acquainted with New York State's payroll taxes is to focus on its biggest metropolis - New York City. This densely populated region is home to a wealth of national and multinational corporations, people, and unique tax withholding requirements.
Read through the list below to get an overview of everything that applies to paychecks in NYC, along with some context on what broadly applies to employers across the state.
Federal Insurance Contributions Act (FICA)
The Federal Insurance Contributions Act (FICA) has been a key component of the US tax system since its implementation in 1935. A national program, it's responsible for the taxes paid by both employers and employees to fund Social Security, Medicare, and other government programs. Federal payroll tax withholding is mandatory no matter which state you operate in.
Here's a quick look at how it manifests on the average New Yorker's paycheck.
Social Security
Social Security supports more than 71 million Americans nationwide with benefits intended to replace a portion of income lost due to retirement, disability, or death.
The Social Security Administration administers two major federal programs funded by FICA taxes: Old Age, Survivor, and Disability Insurance (OASDI) and Supplemental Security Income (SSI). Employers and employees each pay a 6.2% tax on wages up to an annual limit, currently US $160,200 for 2023.
Medicare
Managed by the Centers for Medicare & Medicaid Services, Medicare is a national health insurance program designed to make out-of-pocket costs more affordable for seniors. It, too, is funded with public dollars, largely through FICA payroll taxes.
As of 2023, employers are expected to withhold a total of 1.45% of each of their employees' annual earnings and contribute an additional 1.45% themselves.
Unlike Social Security, Medicare payments do not have an upper limit and increase when individuals make more money. The Internal Revenue Service (IRS) website states that employers have the responsibility to withhold an extra 0.9% in Additional Medicare Tax on individual wages that exceed US $200,000 a year.
Federal Income Tax
The United States has a federal income tax that applies to almost all workers in the country. It's withheld from paychecks and paid annually by employers to the IRS. Although they fluctuate over time, tax rates have remained steady for the past several years.
The US has a progressive income tax system at the federal level. Revised to account for inflation, in 2023, the rates are:
- 10% on earnings between $0 and $11,000
- 12% on earnings between $11,001 and $44,725
- 22% on earnings between $44,726 and $95,375
- 24% on earnings between $95,376 and $182,100
- 32% on earnings between $182,101 and $231,250
- 35% on earnings between $231,251 and $578,125
- 37% on earnings of $578,126 or more
The above ranges apply to single filers; those who file jointly, are married but file separately from their partner, or claim head-of-household status have their own unique brackets. There are also certain income tax credits that may apply depending on the person’s income, family situation, and other factors.
State Income Tax
New York State income tax works just like every other income tax scheme in the US in that it takes a share of workers' pay based on how much they earn in a given year.
For single filers, this graduated system starts at 4% and then increases to:
- 4.5% on amounts exceeding $8,501
- 5.25% on amounts between $11,701 to $13,900
- 5.85% on amounts between $13,901 to $80,650
- 6.35% between $80,651 and $215,400
- 6.85% between $215,401 and $1,077,550
- 9.65% between $1,077,551 and $5,000,000
- 10.3% between $5,000,001 and $25,000,000
- 10.9% for any earnings above $25,000,001
Joint filers, qualifying widows/widowers, and heads of household have different bracket minimums and maximums. Still, all start with 4% and individuals who make over $25,000,001 a year are taxed at a standard rate of 10.90%.
As if that wasn't already complicated enough, the state's government has special supplemental policies designed to tax high earners differently from the average worker. Individuals with an adjusted gross income above $107,650 need to look beyond the conventional rate schedules and instead calculate their taxes with one of the tax computation worksheets available on the New York State Department of Taxation and Finance website.
City Income Tax
New York City is one of a few localities in the US to have its own local income tax. This payroll deduction is taken from workers' paychecks in addition to what is already paid to the State of New York. NYC’s additional local income tax is intended to supplement the city's proportionately higher demand for public services.
It follows a rate schedule similar to other jurisdictions across the country, where contributions increase in tandem with an employee's earnings.
The standards change year to year, but as of 2023, New York City imposes a minimum municipal income tax of 3.078% on workers' first $12,000 of taxable income.
The rate then climbs by the following increments:
- 3.762% on any amount over $12,000, plus $369
- 3.819% on any amount over $25,000, plus $858
- 3.876% on any amount over $50,000, plus $1,813
The threshold earnings needed to qualify for a higher city tax rate vary based on filing status. Individuals submitting a joint return see the base percentage held at 3.078% for their first $21,600 of income, while heads of household can make up to $14,400 before graduating to the next level.
New York State Paid Family Leave Program Tax
Fun fact: New York became the fourth state in the US to offer Paid Family Leave to its residents upon implementing its Paid Family Leave Program (PFL) in April of 2016.
The initiative has since supported thousands of qualifying workers with up to 12 weeks of job-protected time off for essential family needs like childbirth, adoption, and caring for a close relative with a serious health condition. Participants can claim 67% of the money they would usually earn per week, capped by New York State's Average Weekly Wage, which changes from year to year.
New York's PFL program is mainly funded through payroll deductions. Employers must withhold an annual percentage of employees' earnings up to an annual maximum. This year, those numbers are set at 0.455% and $399.43, respectively, and in 2024 will drop to 0.373% and $333.25.
Metropolitan Commuter Transportation Mobility Tax (MCTMT)
New York has a unique Metropolitan Commuter Transportation Mobility Tax (MCTMT) that applies to self-employed individuals and companies who do business in certain areas of the state.
Collectively defined as the Metropolitan Commuter Transportation District (MCTD), Zone 1 (which includes the counties of New York, Bronx, Kings, Queens, and Richmond) and Zone 2 (which includes the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester) each have their own MCTMT rate.
Zone 1 MCTMT Tax Rates
In 2023, MCTMT tax rates for Zone 1 employers stand at 0.11% of IRC gross wages between $0 and $375,000, 0.23% of gross wages between $375,000 and $437,500, and 0.60% of gross wages exceeding $437,500.
Zone 1 MCTMT Tax Rates
MCTMT tax rates for Zone 2 employers are currently set at 0.11% of IRC gross wages between $0 and $375,000, 0.23% of gross wages between $375,000 and $437,500, and 0.34% of gross wages exceeding $437,500.
Who Doesn’t Need to Pay New York Payroll Taxes?
The mandatory taxes we just went over don't apply to everyone; employers who do not maintain an office or transact business in New York State, and are not incorporated or licensed under New York State law, are not required to withhold state or municipal taxes from employees' paychecks.
Further, New York State residents who earn money outside the state and nonresidents within it do not need to contribute to local withholding taxes.
What Payroll Taxes Do Employers Pay In New York?
Employees aren't solely responsible for footing the bill regarding payroll taxes. Certain programs require companies to either partially or fully cover required payments as well.
Let’s look at everything that applies to businesses in New York State:
Social Security and Medicare
If you remember from earlier, the federal government imposes a shared responsibility on workers and employers to pay Social Security and Medicare taxes. Set at rates of 6.2% and 1.45%, respectively, businesses should be prepared to contribute a total of 7.65% of each of their employees' earnings per year.
Unemployment Insurance Contributions
Unemployment Insurance supplements lost wages for individuals who have involuntarily lost their jobs. In New York State, this economic safety net is wholly funded by employers who have to pay taxes that finance unemployment benefits. Every year's tax rate is set in accordance with the size of the Unemployment Insurance Trust Fund. For 2023, the normal contribution rate stands at 3.4% of a worker's annual gross income.
Metropolitan Commuter Transportation Mobility Tax (MCTMT)
Eligible employers are fully responsible for paying the Metropolitan Commuter Transportation Mobility Tax and cannot pass it to employees. More information about qualification criteria can be found on the Department of Taxation and Finance's official website.
Post-Tax Deductions In New York
All the taxes we went over in the above sections are mandated by law. Employers can opt to further deduct certain post-tax payments from an employee's salary so long as they meet the government's criteria.
What Counts as a Post-Tax Deduction in New York?
Every region has its own ground rules with respect to what employers can and can't deduct from a worker's paycheck. The State of New York clearly states that there are four lawful grounds upon which post-tax deductions can be made.
These are:
1. Covering tax deductions required by municipal, state, and federal law.
2. Deductions that have been expressly preauthorized in writing by an employee and are intended to benefit the employee directly.
3. The repayment of wage advancements.
4. The recovery of overpayments made in clerical error.
Below are just a couple of examples of what post-tax deductions might look like in New York.
Retirement Contributions
401(k) plans are a popular offering among US employers who want to incentivize their employees and give them a chance to save for retirement. These plans allow employees to contribute a portion of their post-tax payroll earnings to the plan, and employers may help match some of these contributions. For example, if an employee contributes 5% of his or her income towards retirement savings, the employer might contribute an additional 3%.
Other retirement plans such as IRAs and Roth IRAs also exist, allowing employees to set aside post-tax payroll earnings for retirement or other financial goals.
Group-Term Life Insurance
Group-term life insurance is an employer benefit that provides financial protection to an employee’s family in the event of their untimely death. Group-term life insurance plans are usually funded either in part or in full by the employer, and they generally offer higher death benefits than individual life insurance policies.
Group-term life insurance can be an invaluable protection for employees’ families, ensuring that their financial needs are taken care of in the event of their death. Employers can also benefit from offering this type of insurance plan, as it can help attract and retain high-quality talent.
Premiums for group-term life insurance can be paid by either the employer or employee, although most companies choose to pass some of the cost on to staff in the form of additional post-tax payroll deductions.
In Closing
It goes without saying that tax is complicated. After-tax deductions are another layer of confusion on top of what most people would consider a headache. Yet, they're essential to know about when doing business in New York State or anywhere else in the world.
Borderless can help your organization hire at home and abroad. Our EOR platform and global payroll take the headaches out of taxes and international HR processes.
Check out even more insights on global taxation, hiring, and compliance on the Borderless blog.
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