Tuesday, December 05, 2017

Retirement And The GOP Tax Plan.

The GOP tax plan will punish high tax states like New York and many other Democratic states by eliminating the State and Local Income tax deduction. In addition, the property tax deduction is limited to $10,000.  The New York Times did an in depth study and published it here.

For example the average deduction State and Local Income tax deduction in Manhattan was $60,400 and 45% took the deduction.  In Westchester, it was  $34,400 and 47% took the deductionWhile in Nassau it was $23,900 and 50% took the deduction.

For educators who live in New York City, they pay approximately 10% of their income to State and Local taxes.  Here is an example:

Teacher #1:  Salary $80,000,   Federal Tax = 25% or $18,863
                                           NYS Tax    = 6.65% or $5,320
                                           NYC Tax    = 3.65% or $2,800
                                           Total Tax  =30.30% or $23,983

As one can see, the 10% Sate and Local tax rate results in taxes of over $8,000.  On the other hand the federal tax will be reduced to 22% and the standard deduction increased.by almost double the existing amount.  However, personal exemptions would be eliminated.  The bottom line is that teacher #1  would probably be paying additional taxes due to the higher standard deduction and elimination of deductions.

On the other hand.  If Teacher #1 retires, then the GOP tax plan is going to reduce his or her taxes since the pension, social security, and TDA are not subject to State and Local taxes.  Moreover, the teacher will be in a lower tax bracket.  Finally, the  larger standard deduction probably makes it unnecessary to itemize with no earned income to tax. Overall, it appears that the GOP tax plan might encourage more educators to retire due to tax considerations.


Anonymous said...

I retired, so it helps me a little bit, we will be leaving NYS in the near future...My Kids just married are looking too, they work in industries that allow them to relocate. They want to start a family and for them rent and other expenses are just too much for them in NY.

American Radio Design said...

Well written opinion by our former boss, Mayor Bloomberg, that well summarizes and effects of the proposed tax reform bill: