If you happen to’re an employer within the state of New York, you’ll have heard of the Employer Compensation Expense Tax (ECET) that began in 2019. However, do you know that the ECET, established by the Employer Compensation Expense Program (ECEP), is non-obligatory? Though you aren’t required to pay the ECET, chances are you’ll select to take action.
Learn on to study extra concerning the New York state payroll tax that can assist you determine if you wish to take part.
What’s the ECEP?
The ECEP is a state program that established the Employer Compensation Expense Tax. Employers can elect to pay the ECET for New York workers who earn over $40,000 yearly. Contributed funds assist workers cowl the excessive prices related to state and native revenue taxes. New York established the ECET as a response to the Tax Cuts and Jobs Act of 2017.
The Tax Cuts and Jobs Act restricted itemized deductions that people can declare for state and native revenue taxes to $10,000, affecting workers in high-tax states akin to New York. Companies, alternatively, shouldn’t have a deduction restrict.
If you happen to determine to take part within the Employer Compensation Expense Program, it’s essential to register. After registering, you will need to pay the tax for every qualifying worker.
Collaborating employers pay a share on the worker’s revenue, earned whereas working in New York, in extra of $40,000. And, employers are liable for submitting and depositing their contributions quarterly.
You can not withhold any a part of the ECET fee out of your workers’ wages. ECET is strictly an employer-only tax.
ECET charges
The ECET fee is at the moment set at 5%.
You’ll solely pay the ECET fee on an worker’s wages after they earn $40,000. The primary $40,000 aren’t topic to the ECET. If the worker doesn’t earn greater than $40,000 throughout 1 / 4, don’t pay the tax for that quarter.
Solely pay ECET tax for workers who work in New York. If an worker works part-time in New York and part-time in one other state, solely calculate the ECET for the time the worker works in New York. Don’t pay ECET if the worker’s wages for work in New York are $40,000 or under.
Examples
Check out the next examples to discover ways to calculate the Employer Compensation Expense Tax.
For every instance, you’ll use the present fee of 5%.
Instance 1: NY worker year-round, earns $100,000 per yr
Let’s say your worker works completely in New York.
To seek out the entire quantity you’ll contribute, first subtract $40,000 from $100,000 to get $60,000. You’ll pay 5% of their taxable wages, that are $60,000.
Subsequent, multiply 5% by $60,000 to get your whole contribution of $3,000. Your annual ECET legal responsibility is $3,000 for this worker. You need to make quarterly funds totaling $3,000 for the yr. So, what are your quarterly contribution quantities?
To find out your quarterly contributions, divide the worker’s annual wages by 4 ($100,000 / 4 = $25,000). Your worker earns roughly $25,000 per quarter.
As a result of the worker’s first-quarter earnings of $25,000 are lower than $40,000, don’t contribute in quarter one.
Within the second quarter, the primary $15,000 of the worker’s $25,000 earnings aren’t topic to the ECET ($25,000 quarter one + $15,000 quarter two = $40,000). In the course of the second quarter, you’ll solely pay the ECET on $10,000 of the worker’s wages ($25,000 – $15,000).
Check out how a lot your quarterly funds in your $1,800 annual legal responsibility can be:
- Quarter 1: $0
- Quarter 2: $10,000 X 0.05 = $500
- Quarter 3: $25,000 X 0.05 = $1,250
- Quarter 4: $25,000 X 0.05 = $1,250
Instance 2: NY worker year-round, earns $200,000 per yr
Let’s say your worker earns $200,000 per yr.
First, calculate the worker’s earnings that are topic to the ECET ($200,000 – $40,000 = $160,000). Now, calculate your annual ECET legal responsibility ($160,000 X 0.05 = $8,000). Your annual ECET legal responsibility is $8,000.
Subsequent, decide the worker’s quarterly earnings ($200,000 / 4 = $50,000). The worker’s quarterly earnings are $50,000.
As a result of the worker earns $10,000 greater than $40,000 in quarter 1 ($50,000 – $40,000 = $10,000), you’ll contribute ECET every quarter.
Right here’s how your quarterly funds can be cut up up:
- Quarter 1: $10,000 X 0.05 = $500
- Quarter 2: $50,000 X 0.05 = $2,500
- Quarter 3: $50,000 X 0.05 = $2,500
- Quarter 4: $50,000 X 0.05 = $2,500
Instance 3: NY worker half-year, earns $75,000 per yr
Your workers work in New York for six months and in Pennsylvania for six months. They earn an annual wage of $75,000.
To find out whether or not it’s essential to contribute ECET, divide their annual wage by two to learn how a lot they earn for his or her work in New York $37,500 ($75,000 / 2 ).
The worker earns $37,500 for his or her work in New York. You do not want to pay ECET for this worker.
Instance 4: NY worker half-year, earns $150,000 per yr
Now, let’s say an worker working in New York for six months and Massachusetts for six months earns $150,000 yearly.
For his or her time in New York, they earn $75,000 ($150,000 / 2). The worker earns $35,000 over $40,000 ($75,000 – $40,000), that means you’ll contribute ECET on $35,000 of their wages.
Your annual ECET legal responsibility for the worker is $1,750 ($35,000 X 0.05).
How one can elect to take part in ECEP
As a result of this system is non-obligatory, you’ll not be mechanically enrolled. If you wish to take part within the Employer Compensation Expense Program, you’ll need to register on-line.
To register, you will need to log in to your NY Enterprise On-line Providers account. From there, you possibly can navigate to the Providers menu, then Employment and withholding tax, and at last the ECEP Employer Election possibility.
You need to enroll through the enrollment interval to take part within the following yr’s program. The enrollment interval takes place yearly from October 1 – December 1. The deadline to take part is December 1 every year.
Who can elect to take part depends upon your enterprise entity:
- Companies: Licensed officer or supervisor
- Non-corporations (e.g., sole proprietorship or partnership): Any member, proprietor, or different people with the authority to signal returns
As soon as you have chose to take part, you might be required to pay the tax for the relevant calendar yr. Failing to pay or file on time (or in any respect) may end up in penalties.
Notifying your workers
After electing to take part in New York’s Employer Compensation Expense Program, it’s essential to notify your workers.
After telling workers you’ll contribute to the ECET, ask in the event that they wish to overview their state revenue tax withholding allowances. If you pay the ECET, your workers may have to regulate their allowances. The 2020 model of New York’s state W-4, Kind IT-2104, lets workers declare extra allowances if their employers pay the ECET.
On the finish of the yr, let workers know the way a lot you paid through the yr for ECET. You need to doc their whole wages, wages topic to the tax, and the way a lot you contributed.
The way to file and deposit the Employer Compensation Expense Tax
You need to file and deposit ECET contributions quarterly.
Don’t file and pay your ECET together with your different withholding tax. You need to make a separate on-line fee and file for the Employer Compensation Expense Tax.
Submitting and fee due dates
Though you can not file and pay your ECET together with your different withholding tax, the submitting and fee due dates are nonetheless the identical.
ECET contribution funds are due when your withholding tax funds are due.
File your ECET returns on the identical dates you file your withholding tax returns, that are:
- Quarter 1 (January 1 – March 31): April 30
- Quarter 2 (April 1 – June 30): July 31
- Quarter 3 (July 1 – September 30): October 31
- Quarter 4 (October 1 – December 31: January 31
For extra data on the Employer Compensation Expense Program, go to New York’s web site.
Have you ever determined to take part within the Employer Compensation Expense Program? Don’t stress about calculations. Patriot’s on-line payroll software program will calculate your ECET legal responsibility so that you don’t should. Get your free trial at this time!
This text has been up to date from its authentic publication date of December 19, 2018.
This isn’t meant as authorized recommendation; for extra data, please click on right here.