Must-know changes to New York's MCTMT tax

Executive summary:       

Need-to-know changes to the metropolitan commuter transportation tax

Effective July 1, 2023, the metropolitan commuter transportation mobility tax (MCTMT) top tax rate will increase for some employers and individuals. In addition, recent legislation made a number of critical changes to the MCTMT that both employers and employees should understand. 

The MCTMT

The MCTMT is imposed on certain employers and self-employed individuals engaging in business within the metropolitan commuter transportation district. The tax generally applies to those employers that are required to withhold state taxes and have a payroll expense exceeding $312,500 in any calendar quarter. ‘Payroll expense’ is defined as the total wages and compensation subject to federal social security tax without regard to the annual social security wage limit. Self-employed individuals, including partners, must generally pay the tax when net earnings from the district exceed $50,000. The district includes the five counties of New York City (New York (Manhattan), Bronx, Kings (Brooklyn), Queens, and Richmond (Staten Island)), and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester.

New for 2023 and beyond

Pursuant to New York Senate Bill 4008C/Assembly Bill 3008-C, approved by Gov. Kathy Hochul in early May, the MCTMT highest tier rate will increase from 0.34% to 0.60% for employers conducting business in the five New York City counties, i.e., New York (Manhattan), Bronx, Kings (Brooklyn), Queens and Richmond (Staten Island), effective July 1, 2023. The highest tier rate applies to employers who have a payroll expense exceeding $437,500. The top tier rate and payroll expense threshold for the remaining counties in the district remains unchanged at 0.34% and $437,500, respectively.

The bill will also increase the MCTMT top tax rate imposed on the net earnings of self-employed individuals conducting business in the New York city counties from 0.47% to 0.60% for tax years beginning on or after Jan. 1, 2024. The $50,000 earnings threshold remains unchanged.

The following chart summarizes the MCTMT employer rate changes effective July 1, 2023.

Finally, Part B of New York Senate Bill 4009C/Assembly Bill 3009-C, approved the same day as the above legislation, amends how ’net earnings from self-employment’ is defined for MCTMT purposes effective immediately. The amendment applies to self-employed individuals who take part in the control (directly or indirectly) or participates in the management or operations of the partnership and is not passive investor. This is true regardless of the individual's title, characterization in a partnership or business’ operating agreement. As a result, the net earnings from a self-employed individual that were previously excluded from the MCTMT under federal section 1402 are no longer exempt.

Takeaways

The MCTMT is an often-missed tax due to its limited application in both geography and rate. The addition of a new rate for certain counties could confuse some providers and employers not used to a newly bifurcated top tier rate structure. The mid-year rate change for employers in specific counties will first be subject to the quarterly filing and payment due October 31 for the July 1 through September 30 period. Additionally, self-employed individuals that may have been exempt under section 1402 should begin to plan how to comply with the MCTMT as that change was effective from the governor’s approval. Taxpayers with questions about these changes should reach out to their state and local employment tax providers.