New York City Income Tax Guide

The PropertyClub Team
Jun 27th 2020
The New York City income tax is one of the few negatives of living in this incredible city. Today we'll explore what it is, the rates for 2020, as well as deductions and available credits.

New York City appeals to millions of people as the ideal place to live. It’s fun, full of life, has a fantastic cultural scene, but it is also incredibly expensive to live here. If you’re thinking of making a move to live in NYC, or even if you already live there, you’re probably prepared to pay astronomically high rent rates and succumb to the pricey living expenses. But be warned, the strain on your wallet doesn’t end there. Not only does NYC boast some of the highest cost of living expenses in the world, but it’s also one of the very few cities in the United States that requires individuals to pay a personal income tax.

The NYC personal income tax is calculated and paid annually on your state income tax return, and every income-earning individual that lives in NYC is required to pay it. The personal income tax for New York City is in addition to any other taxes that you might own to the state of New York. Even worse? There are no deductions available. 

It sounds like somewhat of a nightmare, but there are credits offered by the city that might offset some of the taxes paid. Furthermore, there are some loopholes or ways that you might be able to avoid paying personal income tax.

NYC Tax Brackets

So, you’ve come to terms with the fact that you have to pay personal income tax for living in the Big Apple. But exactly how much do you have to pay?

New York City has four separate income tax brackets that range from 3.078% to 3.876%. Where you fall within these brackets depends on your filing status and how much you earn annually. For example:

If you are married, filing jointly.

  • Earning less than $21,600 - 3.078%
  • Earning between $21,600 and $45,000 - $665 plus 3.762%
  • Earning between $45,000 and $90,000 - $1,545 plus 3.819%
  • Earning over $90,000 - $3,264 plus 3.876%

If you are single, or married but filing separately:

  • Earning less than $12,000 - 3.078%
  • Earning between $12,000 and $25,000 - $369 plus 3.762%
  • Earning between $25,000 and $50,000 - $858 plus 3.819%
  • Earning more than $50,000 - $1,813 plus 3.867%

NYC Tax Deductions

Unfortunately, there are no tax deductions specific to NYC income tax. This is because NYC calculates your income based on your net New York State taxable income after you claim any applicable state income-tax deductions. 

NYC Income Tax Credits

Because there are no deductions available for personal income tax, the best way to reduce the amount that you have to pay is to offset what you owe by deducting tax credits from your state income taxes. The following tax credits may help reduce the total amount of taxes that you pay. 

  • NYC School Tax Credit
  • NYC Household Credit
  • NYC Earned Income Credit
  • NYC Child and Dependent Care Credit
  • NYC Real Property Credit

NYC School Tax Credit

The NYC School tax credit is available to NYC residents who have a total household income below $250,000. Individual taxpayers who cannot be claimed by another are eligible for a $63 credit. Those filing jointly would receive a $125 credit. To claim this credit, you also cannot be claimed as a dependant on another filer’s tax return. 

NYC Household Credit

If you cannot be claimed on another filer’s tax return, you are eligible for the New York City Household Credit of between $15 and $30 in credit. Additional credit is available for each dependent you claim.

New York City Earned Income Credit

Both NY state and NYC offer an earned income tax credit. The NYC earned income credit is equal to 5% of your allowable federal earned income tax credit. 

NYC Child and Dependent Care Credit

NYC residents who paid child care expenses for a child under 4 years of age may be eligible for up to 75% of your NY State Dependent Care Credit. To be eligible for the NYC Child and Dependent Care Credit, your household income cannot exceed $30,000.

NYC Real Property Credit

The NYC Real Property Credit is available to renters and homeowners that reside in a property that is not exempt from real property taxes. Total household income must be less than $200,000. The credit is for up to $500. 

Other NYC Income Tax Considerations

There are additional points to consider, mainly if you have sold a home in NYC for profit. Generally speaking, unless you earned more than $250,000 dollars (single) or $500,000 (married filing jointly) in profit, the money that you pocket from the sale of your home is not included in your income tax. However, with the current property prices in NYC, there’s a very good chance that you might exceed those limits, especially if you are selling a property that you have owned for a long time. In this case, you could be required to pay personal income tax on any profit that exceeds the limits. If you own property that you rent out, be aware that rental property appreciation isn’t taxed until you sell that property. 

How to avoid NYC income tax

As mentioned earlier, there are no deductions available for personal income tax. This means that, if you’ve already tried offsetting what you owe with state income tax credits, you’re out of options for further reducing your taxes. However, there are some loopholes that could help you avoid paying personal income tax in the future.

The biggest and most obvious loophole is to live in the city for 182 days of the year or fewer. If you can manage this, you can save big on taxes. Since personal income taxes don’t apply to non-residents, living in the city for less than half the year means that you won’t have to fork out the cash to cover personal income tax, even if you have a residence in the city. The bad news is that, unless you’re very well-off or happen to own two homes, this is difficult to achieve, and simply won’t be possible for most people.

The second option, and one which more and more people are choosing, is to live outside the city but commute to work daily. If, for example, your primary residence is in Northern New Jersey, you can reach Manhattan in as little as thirty minutes. You’re close enough to the city to visit and work, but reap the benefits of cheaper housing, more space, and the avoidance of that pesky personal income tax. You will still be liable for paying State taxes in New York, but you will typically be credited back these taxes on your resident State’s tax return.

Paying upwards of 3% in personal income tax is a hefty pill to swallow for many New Yorkers. It isn’t a cheap price to pay for residing in the city, but on the brighter side, the opportunities presented by the city itself might well allow you to earn a higher income working there than any other city on the East Coast or across the United States. The benefits of potentially higher incomes in the Big Apple draw millions of people to live and work there. But unfortunately, if you want to avoid splashing the cash on personal income taxes, you don’t have very many options. Your best bet is to reap the benefits of NYC from a distance and live outside the city.