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Basics of the New York MTA Tax

Residents of New York State face a wide range of local taxes. For instance, New York has a fairly cumbersome tobacco tax, and there’s even a possibility that a new “soda tax” may be implemented in the future. Those living in the greater New York City metropolitan area, however, are uniquely subject to the MTA Tax.

The MTA Tax, more formally known as the “Metropolitan Commuter Transportation Mobility Tax” (or MCTMT) depending on their circumstances.  In comparison to other taxes, though, the MTA Tax is actually rather modest – the highest rate currently is only 0.34% – but is a cornerstone of funding for transportation services such as trains, ferries and subways in the greater New York City area.  

The MCTMT applies to employers and self-employed individuals. The rationale is that these employers and self-employed individuals consume local transportation services on a regular basis. Accordingly, the extra tax is warranted to balance out this consumption. In this article, we will cover the MCTMT in detail and then discuss why local taxes such as the MCTMT, or MTA Tax, make it necessary to find a qualified tax attorney in the New York City area.  

MTA Tax Localities and Rates

The MTA Tax is imposed within the “Metropolitan Commuter Transportation District,” or MCTD for short. The MCTD includes the five counties of New York City: Manhattan, Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island). It also includes Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester counties. 

Even if you’re an employer or self-employed individual within one of these areas, you might not be liable for the MCTMT tax. The MCTMT applies only if you meet the applicable thresholds. For employers, the following rates apply: for payroll expenses above $312,500 but not above $375,000, the rate is 0.11%; for payroll expenses above $375,000 but not above $437,500, the rate is 0.23%, and the rate only rises to 0.34% for payroll expenses above $437,500. Accordingly, if your payroll expenses don’t exceed $312,500, you won’t owe any tax under the MTA Tax, even if you’re operating within the MCTD.  

For self-employed individuals, the situation is even more straightforward. Rather than basing liability on payroll expenses, MCTMT liability applies whenever a self-employed person has net income of $50,000 plus. Self-employed individuals who meet this threshold will pay at a flat rate of 0.34%. Net income for self-employed individuals follows the definition provided by Section 1402(a) of the Internal Revenue Code. If a self-employed person earns income outside the MCTD, they can allocate to properly compute their tax liability. The allocation is based on their earnings inside the MCTD and those earned outside the MCTD.  

Applicability of the MTA Tax and Payment Schedule 

As with other tax laws, the terms of the MCTMT have narrow definitions. Accordingly, it’s important for employers and self-employed individuals to read the law carefully to determine its applicability in a case. In the context of the MCTMT, the term “employer” is narrowly defined. It means any business required to deduct state income tax from employee wages that has payroll expenses in excess of $2,500 in any calendar quarter. Expenses incurred from certain entities (i.e. domestic and international government agencies), however, do not count toward the expense threshold.

Payroll Expenses

The definition of the term “payroll expenses” comes from the MCTMT. It mean wages and other compensation (such as bonuses or commissions) subject to Social Security taxes and railroad retirement taxes paid to covered employees.  

Covered Employees

When computing payroll expenses, only the expenses paid to “covered employees” are used to calculate the full amount. In other words, if an employer pays expenses to an employee who falls outside the definition of a covered employee, those expenses aren’tt used in the payroll expenses calculation. The term “covered employee” means an employee employed within the limits of the MCTD, and whose services are allocated to the MCTD. Current New York State law provides a series of tests to help employers determine allocation in any individual case.

The Tests

If any of these allocates all services performed within the MCTD, no further tests need to be applied. The tests are as follows: (1) localization, (2) base of operation, (3) place of direction and control, and (4) residence. Each of these tests has its own requirements. Accordingly, it’s necessary to review each test carefully before applying it to any particular scenario. 

The payment schedule for the Metropolitan Commuter Transportation Mobility Tax varies. First, determine whether the employer needs to enroll in the “PrompTax” online payment system. If so, the employer pays the MCTMT liability the same day it remits withholdings. If an employer isn’t required to use PrompTax, but enrolls voluntarily, it may choose to pay the tax on the same day withholding payments are remitted. Doing so, however, would not be a requirement.

If the PrompTax system isn’tt required, payment of the MCTMT is made on a quarterly schedule. The quarterly payment schedule is as follows. The 1st quarter runs from January 1 to March 31 with a due date of April 30. The 2nd quarter runs from April 1 to June 30 with a due date of July 31. The 3rd quarter runs from July 1 to September 30 with a due date of October 31. Lastly, the 4th quarter runs from October 1 to December 31. It has a due date of January 31, of the following year.  

Call Us Today!

As is clear, mere compliance with the MCTMT, or MTA Tax, requires considerable amounts of effort and energy. Regardless of whether you’re an employer or self-employed, consider hiring a  NYC tax attorney. He or she can help you navigate through the MTA Tax to avoid incurring too much of a headache. Tax law is tricky enough even for professionals, so you shouldn’t hesitate to contact us at Mackay, Caswell & Callahan, P.C. for assistance with MTA Tax compliance, or other tax laws in the greater New York City area. 

Image credit: Bradley Weber