• Giving businesses the option to participate in a new opt-in Employer Compensation Expense Program. Those who choose to take part would be subject to a 5 percent tax on all annual payroll expenses over $40,000 per employee. Since the progressive personal income tax system would remain in place, workers would get a new tax credit meant to ensure that they do not experience a reduction in take-home pay. This would be phased in over three years, beginning on Jan. 1, 2019.

• Creating two new state-operated charitable contribution funds that will accept donations for improving health care and education in New York. The intention is for taxpayers to be able to itemize these contributions as deductions on their state and federal tax returns. Those who make such donations will also be eligible to claim a state tax credit equal to 85 percent of the donation amount for the tax year the donation is made. The new budget also authorizes local government bodies like school districts to create similar charitable funds, donations to which would yield a local property tax credit.

• Decoupling the state and federal tax code. Currently, New Yorkers can itemize deductions on their personal income tax only if they also itemize on their federal returns. Because the TCJA doubles the standard deduction to $12,000 for single filers and $24,000 for married couples, it eliminates the option of itemizing for many federal taxpayers. This new provision will allow New York taxpayers to itemize their New York taxes, even if they can’t do so for their federal taxes. It essentially says that any reference to the laws of the United States mentioned in the state tax law actually means the provisions contained in the Internal Revenue Code and any amendments to it made prior to Dec. 1, 2017.  

Other states, such as New Jersey, have instituted similar measures. In response, however, the IRS warned states that efforts to circumvent the deduction cap were not appreciated, particularly the use of a state-run nonprofits to be able to claim federal charitable deductions. The agency strongly implied that it would not accept such deductions as valid, citing substance-over-form principles. 

Senator Schumer, in a recent speech in Westchester, though, said similar programs have operated in 32 other states, and the IRS never seemed to have a problem with them before. He said that, through the IRS warning, the administration is abruptly trying to change the rules on New York, undermining its right to determine its own tax structure. He called on the IRS to issue unbiased guidance to make it clear that donations to New York state’s charitable funds will be treated like charitable contributions to other state-operated charitable funds.