Should you’re an employer within the state of New York, you could 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-compulsory? Though you aren’t required to pay the ECET, you could select to take action.
Learn on to study extra concerning the New York state payroll tax that will help 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 staff who earn over $40,000 yearly. Contributed funds assist staff 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 staff in high-tax states resembling New York. Companies, alternatively, wouldn’t have a deduction restrict.
Should you determine to take part within the Employer Compensation Expense Program, it’s essential to register. After registering, you should pay the tax for every qualifying worker.
Collaborating employers pay a proportion on the worker’s revenue, earned whereas working in New York, in extra of $40,000. And, employers are accountable for submitting and depositing their contributions quarterly.
You can not withhold any a part of the ECET charge out of your staff’ wages. ECET is strictly an employer-only tax.
ECET charges
The ECET charge is at the moment set at 5%.
You’ll solely pay the ECET charge on an worker’s wages after they earn $40,000. The primary $40,000 will not be 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 beneath.
Examples
Check out the next examples to discover ways to calculate the Employer Compensation Expense Tax.
For every instance, you’ll use the present charge of 5%.
Instance 1: NY worker year-round, earns $100,000 per 12 months
Let’s say your worker works solely 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 will need to make quarterly funds totaling $3,000 for the 12 months. 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 will not be 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 on 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 12 months
Let’s say your worker earns $200,000 per 12 months.
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 break 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 12 months
Your staff 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 the way 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 12 months
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).
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How one can elect to take part in ECEP
As a result of this system is non-compulsory, you’ll not be mechanically enrolled. If you wish to take part within the Employer Compensation Expense Program, you will want to register on-line.
To register, you should log in to your NY Enterprise On-line Companies account. From there, you’ll be able to navigate to the Companies menu, then Employment and withholding tax, and eventually the ECEP Employer Election choice.
You will need to enroll in the course of the enrollment interval to take part within the following 12 months’s program. The enrollment interval takes place yearly from October 1 – December 1. The deadline to take part is December 1 annually.
Who can elect to take part relies on 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 choose to take part, you’re required to pay the tax for the relevant calendar 12 months. Failing to pay or file on time (or in any respect) can lead to penalties.
Notifying your staff
After electing to take part in New York’s Employer Compensation Expense Program, it’s essential to notify your staff.
After telling staff you’ll contribute to the ECET, ask in the event that they wish to overview their state revenue tax withholding allowances. Whenever you pay the ECET, your staff might have to regulate their allowances. The 2020 model of New York’s state W-4, Type IT-2104, lets staff declare extra allowances if their employers pay the ECET.
On the finish of the 12 months, let staff know the way a lot you paid in the course of the 12 months for ECET. It’s best to doc their whole wages, wages topic to the tax, and the way a lot you contributed.
How you can file and deposit the Employer Compensation Expense Tax
You will need to file and deposit ECET contributions quarterly.
Don’t file and pay your ECET along with your different withholding tax. You will need to make a separate on-line fee and file for the Employer Compensation Expense Tax.
Submitting and fee due dates
Though you can’t file and pay your ECET along 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 info on the Employer Compensation Expense Program, go to New York’s web site.
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This text has been up to date from its unique publication date of December 19, 2018.
This isn’t supposed as authorized recommendation; for extra info, please click on right here.
