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New York Tax Department Issues Guidance on New Employer Compensation Expense Tax

BY: APA Staff | 07/12/18

The New York Department of Taxation and Finance (DTF) has issued guidance on the new Employer Compensation Expense Tax (ECET) [DTF, TSB-M-18(1)ECEP, Employer Compensation Expense Program, 7-3-18].

The ECET was enacted earlier this year in response to federal tax reform. It is an optional, employer-paid tax that is being phased in over three years: 1.5% for 2019; 3% for 2020; and 5% for 2021 and thereafter. An employer may not deduct or withhold the ECET from an employee’s wages. The deadline for an employer to opt-in for 2019 is December 1, 2018. The DTF will provide a web-based registration system.

Electronic Filing, Payment Required

The ECET must be paid electronically on the same dates as the employer’s withholding payments are made. Quarterly ECET returns are due on the same dates as withholding returns and must be filed electronically. Employers may be subject to ECET-related penalties, including late filing, late payment, and failure to file.

Important Information for Payroll Professionals

There will be no change to the withholding tables for employers that opt-in. However, the 2019 Form IT-2104, Employee’s Withholding Allowance Certificate, will be updated to allow employees whose wages are subject to the tax to adjust their state tax withholding accordingly. The DTF is advising employers to tell employees that they opted into the ECET, encourage covered employees to review Form IT-2104 and adjust their withholding, and communicate to their covered employees at the end of the year the amount of wages subject to the ECET. The DTF will post a sample template on its website.

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