You have surely heard that the state of New York has one of the highest tax rates and, consequently, its inhabitants have to pay more taxes compared to citizens in other states. But beyond talking with your friends about their wishes of one day living in the Big Apple, have you really wondered how paycheck deductions work in NY?
Everything related to taxes can be a bit overwhelming due to all the calculations, deductions, exemptions, and forms that you must fill out, but if you look for the information in the right place, everything can be easier than you think.
In this article, you will get key and concise information about how taxes work in NY.
New York State Taxes
When it comes time to fill out and pay our tax returns, we usually make a very common mistake, which is only trying to calculate how much we should pay without first understanding what the regulations related to taxes are. By understanding how the tax system of a state works, you will know how to make your calculations and deductions correctly so you can avoid paying penalties.
You will also know how to estimate your paycheck deductions and know how much money you will receive at the end of your workday.
One of the first things we should know about NY taxes is that in addition to federal and state taxes, there are cities where you must pay local taxes, such as New York City, Yonkers, Putnam, Nassau, Suffolk, Richmond, Orange, Rockland, Westchester, and Dutchess, where there are local taxes for certain self-employed citizens.
Paycheck Deductions
In NY State there are (generally) 3 paycheck deductions:
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Form W-4
You should surely know that when you start a new job, you must complete the W-4 form with your basic information such as your marital status, how many dependents you have, how much money you earn, and how many jobs you have. Before 2020, in this form, you had to write your “allowances” but now you only have to write the dollar amounts of your additional income as income tax credits or unearned income.
It is worth noting that all the personal data that you write on the form will affect the amount that your employer withholds from your paycheck as deductions of federal income taxes.
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Federal Insurance Contributions Act (FICA)
Another deduction that you will get from your paycheck is the one related to social security and Medicare services. At the time of issuing your payment, your employer will deduct 1.45% of your salary (Medicare) and 6.2% (Social Security) and in turn, they will double those amounts so that your contribution is doubled.
If your salary is greater than $ 200,000.00, you will be charged an additional 0.9% Medicare rate (but this will not be matched by your employer). Likewise, if you are an independent worker, you should only cover the total amount of the contributions, although you can later deduct the part that would correspond to “your employer” if you had it.
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Income Taxes
This is where most of the doubts arise since depending on how much you earn, you will have to pay a corresponding fee. This means that the higher your salary is, the higher the tax on your income.
To make it easier to understand, we can divide NY income taxes into 3 sub-classifications: (a) if you live in any NY city other than New York City or Yonkers, (b) if you live in New York City, and (c) if you live in the city of Yonkers.
If you live in any city in NY that is not New York City or Yonkers
In the state of New York, the system implemented regarding this issue is very similar to that used for federal income taxes.
It is a progressive system that will depend on the amount of money you earn, there are 8 levels based on income and filing status and the tax rate will depend on where you are located on the scale. In general, tax rates range from 4% to 8.82%. It’s one of the highest rates in the country, but don’t be alarmed. Only people earning approximately $ 1,000,000.00 must pay the maximum rate.
All people living in the New York State outside New York City or Yonkers shall only pay this state income tax. In this PDF, you can find more detailed information about tax rates depending on your payroll period, the amount of your salary, and the methods you must use to calculate your paycheck deductions.
If you live in New York City
New York City is one of the few cities in our country that imposes a local income tax on its citizens. This means that taxpayers must pay an additional tax on their income in addition to federal and state income taxes.
This local income tax uses the same method as state taxes. Depending on your income, payroll period, and marital status (if you file jointly), the tax rate will vary.
Every year, the local authorities update the regulations regarding this local tax, the tax rates range from approximately 3.078% to 3.876%. In this PDF, you can check the income levels in more detail and how you should calculate the deductions.
If you live in the City of Yonkers
It is almost the same as for those who live in New York City. So, if you live in the city of Yonkers, in addition to federal and state taxes, you have to pay a local income tax. Although tax rates may vary, to give you an idea, residents must pay approximately 16.70% of their net state tax and non-residents 0.5%.
New York City and Yonkers are the only two cities that have an additional tax on citizens’ income.
