Unlike the rest of the countries’ federal minimum wage, New York State introduced a statewide $15 per hour minimum wage plan. The state had plans to increase the minimum wage ever since 2016, making it so that the minimum wage would be increasing every year until it is $15 per hour statewide. The Commissioner of Labor will publish the annual wage increase before or on October 1st every year.
However, this plan only included general workers. Meanwhile, service workers and other tipped employees are still under the threshold outlined by that legislation. Simply put – there are different hourly rates for workers in the fast-food industry and those who receive tips.
This article will cover all of the information you need to know about taxes in detail, starting from different income types to types of taxes and the deduction percentage.
Types of Income
Gross Income
Gross income is the total amount of money you earn, weekly, monthly, or yearly. The gross income for an individual consists of pensions, interest, dividends, and rental income. When it comes to individual gross income, it is part of an income tax return. After certain deductions and exemptions, it becomes adjusted gross income and then taxable income.
When it comes to businesses, the gross income, or the gross profit, includes the company’s gross revenue but does not include all other additional business costs. Gross income is subject to taxation above a certain base amount.
Personal Take-home Income
Personal income includes money earned from employment, distributions paid by investments, rents taken from property ownership, and business profit sharing. It constitutes what is left after paying your taxes. Once all of your taxes are deducted from your salary, you get the personal income. It is also subject to taxation.
The term itself, personal income, often gets mixed up with the term individual income. Individual income is often described as the total paycheck received by an individual.
Types of Taxes
Federal Income Tax
To start, we must make a distinction between income tax and federal income tax. There are currently only nine states in the country that do not have an income tax, and New York is not one. We will cover New York State’s income tax in more detail in the following text.
Federal income tax is deducted by the Internal Revenue Service (IRS) annually, and it’s one of the government’s largest sources of income. The IRS tax individuals, corporations, trusts, and other legal entities. It consists of the taxpayer’s employment earnings or capital gains.
Federal income tax is used for a variety of expenses. These expenses range from building and repairing the country’s infrastructure – to improving education and public transportation and providing disaster relief.
Medicare Tax
Medicare taxes are a part of the Medicare health insurance program. When you pay for the Medicare taxes, the payroll deducted from your gross earnings goes through the United States government first. Given its status as a health insurance program for individuals in need, the federal government requires everyone who’s an American citizen to pay their fair share of Medicare taxes.
The Medicare Health Insurance program is designed to help the elderly, as well as individuals with disabilities. It provides cost-affordable medical care and ensures that these individuals have proper medical coverage in situations where they might be vulnerable to illness or chronic ailments.
The Medicare tax costs are split equally between employers and employees, ensuring that both sides pay fairly.
Local Taxes
Local taxes are issued by a state, county, or municipality to fund various public services. These services range from education to garbage collection and sewer maintenance.
Taxes issued by cities and towns are also considered municipal taxes. They can come from various places, such as property taxes, payroll taxes, sales taxes, and even licensing fees. For most homeowners, the biggest local tax they pay is the property tax bill. Although, most states rely on income taxes, which are withheld from employees’ payroll.
Sales Taxes
Sales taxing is another taxing method imposed by the government, affecting the sales of goods and services. Sales taxes are taken while the sale is in process. It is collected by the retailer and then passed on to the government itself. Depending on the law and whereabouts of the business, the business in question will need to pay taxes to the given law authorities if it has a nexus there. These can be an employee, an affiliate, or some other presence.
State Income Taxes
Just like federal taxes, state income is self-assessed. This means taxpayers need to file required state tax returns, but only the state you’re living in can tax your income.
Tax laws, procedures, rates, and forms all differ from state to state. Along with that, the deadlines also vary. Usually, state tax for individuals falls on the same day as federal tax day. As of last year, however, in 2020, the deadlines were updated and adjusted due to the pandemic. They will most probably be modified yet again if the pandemic persists.
Additional Information
Employers Withholding Taxes
In the case there’s an employer who maintains an office or transacts business within New York State, whether a paying agency is held within the state or not, they must withhold personal income tax. However, if an employer is outside of New York State, who doesn’t have an office or transact business from within New York State, then they are not required to deduct any taxes from employees who reside in New York State. In the case of the out-of-state employer agreeing to deduct the employee’s income taxes, the employer is subject to New York State withholding requirements.
Every employer is required to withhold taxes for:
- New York State residents earning wages, even when earned and performed outside of their residential area.
- New York State nonresidents being paid wages for services earned and performed within their residential area.
To avoid penalties, it’s essential to pay any withholding taxes on time and report employee wage and withholding information with maximum accuracy.
Tax Deduction Percentage Based on NYC Minimum Wage
To sum all of the information provided, this is an example of tax deduction percentage based on the New York City minimum wage. The payroll for an average employee with a minimum salary is $26,000 on an annual basis.
The federal income tax deduction is $1,435 yearly. The State Income Tax is $878, Social Security being $1,612, the Medicare Insurance tax being $377, the State Disability Insurance (SDI) being $31.20 – and Paid Family Leave Policy/Family Leave Insurance (FLI) being $70.20.
Yearly, after all the taxes are paid for, the take-home paycheck is $21,597 in total. Therefore, the total amount of taxes paid annually would be $4,403. This means the total percentage for tax deduction is 16.9%.
The average marginal tax rate is 25.9%, while the average tax rate is 16.9%, as stated above. Additionally, the FICA and State Insurance Taxes would take away 7.90% for a tax deduction.
So, in short, if you make $26,000 a year living in the region of New York, USA, you will be taxed $4,403. That means that your net pay will be $21,597 per year or $1,800 per month. Your average tax rate is 16.9%, and your marginal tax rate is 25.9%. This marginal tax rate means that your immediate additional income will be taxed at this rate. For instance, an increase of $100 in your salary will be taxed $25.85. Hence, your net pay will only increase by $74.15.
As an additional example, the $1,000 bonus will generate an extra $742 of your net income, while a $5,000 bonus will generate an extra $3,708 of your net income.
In case you are not sure whether you are correctly filing your taxes, feel free to contact Cilenti & Cooper for consultations. For 12 years now, they have been working hard to ensure all workers are paid fairly, with an astounding 100% success rate – and they will surely be able to help you too. Whether you are uncertain about your employer’s way of filing taxes or your own, Cilenti & Cooper can and will be of aid in resolving the issue.