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The New York Department of Taxation and Finance released the 2021 income tax withholding tables for New York State and Yonkers.

Proposed regulations that included revised wage bracket and percentage method income tax withholding tables for New York and Yonkers effective with wages paid on or after January 1, 2021, was previously released. (EY Tax Alert 2020-2354, 09-30-2020.)

The Department has also released an updated Publication NYS-50, Employer’s Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax.

New York will continue with incrementally reducing certain state income tax rates that began in 2018

The New York State fiscal year 2021 budget legislation provided that despite the financial drain of the COVID-19 emergency on the state’s budget, the personal income tax rate reductions that began in 2018 under Chapter 60 of the Laws of 2016 (Part TT) will continue. (News release governor’s office; New York Department of Taxation and Finance June 2016 Summary of SFY 2016-2017 provisions.)

The 2020 New York State and Yonkers personal income tax rate schedules were revised for the third consecutive year to reflect the income tax rate reductions enacted under Chapter 60. The law continues to be phased in beginning for tax year 2018 and ending in tax year 2025, after which point the new income tax rates will be made permanent.

When fully phased in:

• Taxpayers with taxable incomes between $26,000 and $150,000 ($13,000 and $75,000 for single filers) will see their marginal income tax rates reduced to 5.5%.
• Taxpayers with taxable incomes between $150,000 and $300,000 ($75,000 and $200,000 for single filers) will see their marginal tax rates reduced to 6.0%.

Supplemental withholding rates

Effective January 1, 2021, the following withholding rates apply to supplemental wages (bonuses, commissions, overtime pay, sales awards, etc.):

New York State ........................................................9.62% (unchanged)

Yonkers Resident .....................................................1.61135% (unchanged)

Yonkers Nonresident ................................................0.50% (unchanged)

New York City ..........................................................4.25% (unchanged)

If supplemental wages (bonuses, commissions, overtime pay, sales awards, etc.) are paid with regular wages but the amount of each is not specified, withhold income tax as if the total were a single payment for a regular payroll period.

If supplemental wages are paid separately (or combined in a single payment, specifying the amount of each), the income tax withholding method depends partly on whether income tax was withheld from the employee’s regular wages.

If income tax is withheld from an employee’s regular wages, one of the following methods can be used for supplemental wages:

1. Withhold at the supplemental rates
2. Add the supplemental and regular wages for the most recent payroll period this year, then figure the income tax withholding as if the total were a single payment; subtract the tax already withheld from the regular wages; withhold the remaining tax from the supplemental wages

If income tax was not withheld from the employee’s regular wages, use method b. (This would occur, for example, when the value of the employee’s withholding allowances is more than the wages.)

See also federal Publication 15, Circular E, for a list of other payments that may be considered supplemental wages.

Form IT-2104, Employee’s Withholding Allowance Certificate to be revised

The updated Publications NYS-50-T-NYS and NYS-50-T-Y explain that New York State Form IT-2104, Employee’s Withholding Allowance Certificate, for use by New York and the City of Yonkers employers will be revised effective January 1, 2021, to account for additional allowances taxpayers may claim.

The revised form is available here.

Employees should be reminded that if they filed a change to their federal Form W-4 on and after January 1, 2020, personal allowances no longer apply for federal income tax and withholding purposes.  Accordingly, New York employees wishing to claim allowances for New York state or local income tax withholding should be sure to file a Form IT-2014.

The Form IT-2014 instructions state that if the federal Forms W-4 most recently submitted to an employer was for tax year 2019 or earlier, and employees did not submit state Form IT-2104, the employer may use the same number of federal allowances that employees claimed on their federal Form W-4. For employers that elect to use the federal allowance amounts in computing wages after allowances, Table D should be used to make the correct adjustments for the difference between the federal allowance and the New York State calendar year allowance of $1,000 according to the particular payroll period.

Because withholding allowances are no longer reported on federal Form W-4, if the employee submits a federal Form W-4 to an employer for tax year 2020 or later, and the employee does not submit state Form IT-2104, the employer may use zero as the number of federal allowances. To correct for the lower New York State withholding allowances, multiply the amount on Table D for one allowance by the number of allowances claimed. Add the product to the federally computed wages after allowances.

For more information on New York and Yonkers withholding tax, see the Department’s website.

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