New York State will continue to fully tax unemployment benefits despite a federal exemption on the first $10,200 received by some workers who lost their jobs last year due to the pandemic.
Robert Mujica, Gov. Andrew M. Cuomo’s budget director, said Wednesday the state’s new spending plan for the 2021-22 fiscal year makes no change to the taxable status of jobless benefits, though the issue did come up in budget negotiations.
New York has been taxing unemployment checks for 50 years. The federal government has as well. But in response to massive COVID-related job losses, Congress and President Joe Biden last month approved the $10,200 exemption for taxpayers with less than $150,000 in modified adjusted gross income in 2020.
Fifteen states and Washington, D.C., had adopted similar exemptions as of March 29, according to the Tax Foundation think tank in Washington.
"There has been no change to the taxable status of unemployment benefits" in New York, Mujica said in response to a Newsday question during a virtual news conference from Albany. "Those benefits have been subject to state tax for decades...That has not changed," he said.
Earlier, bills were introduced in the State Senate and Assembly to establish the $10,200 exemption on unemployment benefits regardless of the taxpayer’s income.
Babylon accountant Dan Martin said Wednesday that he has clients who were hoping for a state tax break on their unemployment benefits.
Martin said he finds it "ironic that New York State wants to fully tax the money from legal citizens who had taxable wages, then fell upon hard times and collected unemployment."
Yet, Martin said, immigrant workers living here illegally, "with cash wages and no tax withheld, will soon be collecting New York State unemployment insurance" under a $2.1 billion program in the 2021-22 budget. He is a Republican running for Babylon Town supervisor.
The state will impose a 5% tax on the unemployment checks provided to immigrant workers under the new Excluded Workers Fund. The tax equals $160 or $780 depending on the size of the one-time benefit, according to budget legislation.
Separately, the budget extends the "no taxes for 10 years" promise of the Start-Up NY program to participants who had employees work from home to slow the coronavirus’ spread. They were complying with a Cuomo order.
Without the budget change, employees would have to pay state income tax on their 2020 wages and Start-Up NY firms could be expelled from the program because the employees didn't work at the office or laboratory on a college campus.
"This budget fixes a hiccup in the state tax code that would have penalized hundreds of Start-Up NY companies and thousands of their employees with huge unplanned for tax bills" across the state, said Marc Alessi, CEO and co-founder of SynchroPET Inc., a Start-Up NY participant based at Stony Brook University.
Locally, 15 technology firms with about 40 workers are enrolled in the program, which is run by Empire State Development, the state's primary business-aid agency.
ESD CEO Eric Gertler said he was "glad to provide a solution in the enacted budget."
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