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 continue 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 Taxation (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 working class Americans are temporary 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 unequally. 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 eliminated 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 permanently 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 itemized deductions and included deductions for state and local taxes paid under the State personal income tax; 76% reported tax payments in excess of the $10,000 federal cap. Of these taxpayers, nearly all with incomes under $100,000 will be able to fully deduct their SALT payments under the temporary, 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.

Child Tax Credit Changes

Taxpayers with children will also see limited relief from the increase in the child tax credit to $2,200 per child starting in tax year 2025. The credit will also be indexed to inflation after 2025. There is also a refundable portion of the tax credit, which was reduced under the new law and will no longer be indexed to inflation, reducing the benefit for lower income taxpayers. In tax year 2022, nearly 2.1 million New York taxpayers claimed $6.1 billion in federal child tax credits, $1.8 billion of which was refundable.

For taxpayers who pay for childcare, the nonrefundable credit as a share of these expenses was increased for those with incomes less than $105,000. However, the maximum amount of expenses eligible for the credit remains unchanged at $3,000 for one child and $6,000 for two or more, failing to address the rising cost of childcare for most families. The average cost of childcare for one child in New York in 2023 was nearly five times the $3,000 cap allowed for the credit. In tax year 2023, nearly 310,000 resident New York taxpayers claimed the federal child and dependent care credit, just 3.3% of total filers, the largest number of claimants were those with incomes over $105,000.

Report
Tax Provisions Under the Federal Reconciliation Bill

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