Basics of the New York MTA Tax
Residents of New York State face a wide range of local taxes. For instance, New York has a fairly cumbersome tobacco tax, and there’s even a possibility that a new “soda tax” may be implemented in the future. Those who live in the greater New York City metropolitan area, however, are uniquely subject to a tax commonly known as the MTA Tax.
The MTA Tax, more formally known as the “Metropolitan Commuter Transportation Mobility Tax” (or MCTMT) depending on their circumstances. In comparison to other taxes, though, the MTA Tax is actually rather modest – the highest rate currently is only 0.34% – but is a cornerstone of funding for transportation services such as trains, ferries and subways in the greater New York City area.
The MCTMT is imposed on employers and self-employed individuals under the rationale that these employers and self-employed individuals are consuming local transportation services on a regular basis; thus, an extra tax is warranted to balance out this consumption. In this article, we will cover the MCTMT in detail and then discuss why local taxes such as the MCTMT, or MTA Tax, make it necessary to find a qualified tax attorney in the New York City area.
MTA Tax Localities and Rates
The MTA Tax is imposed within what’s known as the “Metropolitan Commuter Transportation District,” or MCTD for short. The MCTD includes the counties of Manhattan, Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester.
Even if you’re an employer or self-employed individual within one of these areas, you may not necessarily be liable for any tax under the MCTMT. The MCTMT is only triggered if you meet the applicable thresholds. For employers, the following rates apply: for payroll expenses above $312,500 but not above $375,000, the rate is 0.11%; for payroll expenses above $375,000 but not above $437,500, the rate is 0.23%, and the rate only rises to 0.34% for payroll expenses above $437,500. Accordingly, if your payroll expenses don’t exceed $312,500, you won’t owe any tax under the MTA Tax, even if you’re operating within the MCTD.
For self-employed individuals, the situation is even more straightforward: rather than being based on payroll expenses, the MCTMT liability is triggered whenever a self-employed person has net income of at least $50,000. Self-employed individuals who meet this threshold will pay at a flat rate of 0.34%. Net income for self-employed individuals follows the definition provided by Section 1402(a) of the Internal Revenue Code. Importantly, if a self-employed person earn income outside the bounds of the MCTD, then that person is allowed to allocate their earnings in order to properly compute their tax liability under the MCTMT their earnings between those earned inside the MCTD and those earned outside the MCTD.
Applicability of the MTA Tax and Payment Schedule
As with other tax laws, the terms of the MCTMT have narrow definitions, and so it’s important for employers and self-employed individuals to read the law carefully to determine its applicability in any particular case. In the context of the MCTMT, the term “employer” means any business entity which is required to deduct state income tax from employee wages and which has payroll expenses in excess of $2,500 in any given calendar quarter. Expenses incurred from certain entities (i.e. domestic and international government agencies), however, do not count toward the expense threshold.
The term “payroll expenses” is defined in the context of the MCTMT to mean wages and other compensation (such as bonuses or commissions) subject to Social Security taxes and railroad retirement taxes paid to covered employees.
When computing payroll expenses, only the expenses paid to “covered employees” are used to calculate the full amount. In other words, if an employer pays expenses to an employee who falls outside the definition of a covered employee, then those expenses are not used in the payroll expenses calculation. Under the MCTMT, the term “covered employee” means the following: an employee who is employed within the limits of the MCTD, and whose services are allocated to the MCTD. Current New York State law provides a series of tests to help employers determine allocation in any individual case. If any one of these tests allocates all services performed by the employee within the MCTD, then no further tests need to be applied. The tests are as follows: (1) localization, (2) base of operation, (3) place of direction and control, and (4) residence. Each of these tests has its own requirements and so it’s necessary to review each test carefully before applying it to any particular scenario.
The payment schedule for the Metropolitan Commuter Transportation Mobility Tax varies depending on whether the employer is required to enroll in the “PrompTax” online payment system. If an employer is required to use PrompTax, then the employer must pay the MCTMT liability on the same day the employer remits withholding payments under this system. If an employer isn’t required to use PrompTax, but enrolls voluntarily, then the employer may choose to pay the tax on the same day withholding payments are remitted, but doing so in such a scenario would not be a requirement. For those not required to utilize the PrompTax system, payment of the MCTMT is made on a quarterly schedule. The quarterly payment schedule is as follows: the 1st quarter runs from January 1 to March 31 with a due date of April 30; the 2nd quarter runs from April 1 to June 30 with a due date of July 31; the 3rd quarter runs from July 1 to September 30 with a due date of October 31; and the 4th quarter runs from October 1 to December 31 with a due date of January 31, of the following calendar year.
As is abundantly clear, merely complying with the provisions of the MCTMT, or MTA Tax, requires considerable amounts of effort and energy. Regardless of whether you’re an employer or a self-employed person, it’s almost imperative that you hire a NYC tax attorney to help you navigate through the MTA Tax to avoid incurring too much of a headache. Tax law is tricky enough even for professionals, so you shouldn’t hesitate to contact us at Mackay, Caswell & Callahan, P.C. for assistance with MTA Tax compliance, or other tax laws in the greater New York City area.
Image credit: Bradley Weber