How to Calculate Expected Effective Tax Rate in NYC

by Michael Dreiser ; Updated April 19, 2017

Taxpayers in New York City are subject to three layers of income taxation: federal, state and city taxes. Computing the expected effective marginal tax rate is not as simple as adding the tax rates for each jurisdiction together. Because taxpayers are allowed a deduction on their federal returns for the payment of state and local income taxes, an adjustment must be made to compensate for this deduction. As a result, the effective marginal tax rate will be less than the sum of the three individual marginal rates.

Step 1

Based on your expected level of income, identify your anticipated federal income tax bracket. The IRS publishes tax brackets based on a taxpayer's anticipated total taxable income, known as adjusted gross income (AGI). Currently, the existing tax brackets are 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

Step 2

Based on your expected level of income, identify anticipated state income tax bracket. The New York State Department of Taxation and Finance also publishes tax brackets based on a taxpayer's AGI. The New York State tax bracket rates change on an annual basis.

Step 3

Based on your expected level of income, identify anticipated city income tax bracket. The New York City income tax brackets are also published by the New York State Department of Taxation and Finance, and are based on taxpayers' AGI. The New York City tax bracket rates change on an annual basis.

Step 4

Multiply the rate for your anticipated state income tax bracket by 1 minus the rate for your anticipated anticipated federal income tax bracket. For example, if your federal income tax bracket is 25 percent, you will multiply the rate for your anticipated state income tax bracket by 1 minus 0.25, which is 0.75, or 75 percent.

Step 5

Multiply the rate for your anticipated New York City income tax bracket by 1 minus the rate for your anticipated anticipated federal income tax bracket. Just as in Step 4, if your federal income tax bracket is 25 percent, you will multiply the rate for your anticipated New York City income tax bracket by 1 minus 0.25 percent, or 0.75, which is 75 percent.

Step 6

Add together your anticipated effective marginal New York State tax rate, your anticipated effective marginal New York City tax rate, and your anticipated federal income tax bracket. The result is your combined anticipated effective marginal tax rate.

Tips

  • Tax brackets can be identified in the instructions to the appropriate income tax returns. A combined return is filed for New York State and New York City income taxes.

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About the Author

Michael Dreiser started writing professionally in 2010. He is a certified public accountant with experience working for a large New York City accountancy and expertise in areas ranging from private equity taxation to investment management. He holds a Master of Business Administration in international finance from l’École Nationale des Ponts et Chaussées in Paris.

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