If you’re a CPA in the New York City area, it’s likely you have clients who are subject to the Metropolitan Commuter Transportation Mobility Tax (MCTMT). The MCTMT, also referred to as the NY Mobility Tax, is a city-level commuter tax which is imposed on employers and self-employed individuals within certain areas of New York State. The MCTMT rate is imposed on a graduated basis, and so an entity’s income will impact the precise rate which applies in a given case. The MCTMT has been known to cause a bit of befuddlement on the part of taxpayers and CPAs alike. Taxes within New York State are already complex as it is without taking the MCTMT into consideration. If we think about how CPAs in the greater New York City area can increase their professional standing, effectively counseling clients on the MCTMT may be a great step toward this goal.
In this post, we will go over the basics of the MCTMT, laying out its basic structure and rate schedule. We will also look at a hypothetical example of its application in a real world scenario. CPAs should be able to identify when a client may come under the MCTMT in advance. This will give clients adequate notice so that they can plan ahead. CPAs should also be able to give clients a sense of their projected MCTMT liability. If you can effectively instruct clients on things such as the MCTMT, you’ll be well on your way toward solidifying a solid client base.
The Geography and Purpose of the MCTMT
The NY Mobility Tax is imposed only within certain areas of New York State. These areas include all the boroughs of New York City and a few additional counties. The following is the complete list of all counties in which the MCTMT applies: New York County (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester. Collectively, these areas within New York State are referred to as the Metropolitan Commuter Transportation District (MCTD). If you have a client who conducts business in one of these areas, this should immediately cause a ping on your radar. This will mean that your business or individual client will be subject to the MCTMT if certain conditions be met. It’s your job to investigate and determine whether those conditions be met in a given case.
The purpose of the MCTMT is to provide additional funding for local transportation projects and infrastructure in New York State. The funds generated by the MCTMT are distributed to the Metropolitan Transportation Authority (MTA) in New York State. If your clients be subject to the MCTMT, they’ll probably want at least some background on it. When people hand over money, they usually like to at least know what it’s going toward.
MCTMT Structure and Schedule
As mentioned, the MCTMT is imposed on a graduated basis, but this actually only applies to employers. If an employer conducts business in the MCTD, that employer will face the following tax rates under the MCTMT: over $312,500 but not over $375,000, 0.11%, over $375,000 but not over $437,500, 0.23%, over $437,500, 0.34%. These rates apply to payroll expenses, so the tax rate is applied to the total payroll expenses of the employer.
For self-employed individuals working within the MCTD, the MCTMT is applied on a flat rate. The threshold is $50,000, so if an individual generates more than $50,000 net earnings in the MCTD, he or she will face a flat tax rate of 0.34%.
Employers and self-employed individuals will face penalties if they fail to pay or if they underpay their MCTMT liability. This is something to mention when you counsel clients who are subject to this tax. With these rates in mind, you should be able to give your clients at least a vague estimate of their MCTMT liability. The MCTMT is paid on a quarterly schedule, except in cases involving use of the PrompTax system. The MCTMT is computed according to annual payroll expenses or net earnings, and so those subject to the MCTMT must make estimated quarterly payments.
A Quick Hypothetical
Let’s just look at a quick hypothetical example to get a sense of what a liability under the MCTMT in a given situation may look like. Let’s suppose we have a self-employed individual commuting to and working in Westchester. Suppose that self-employed individual has a projected net earnings of $80,000. To compute the tax liability under the MCTMT, we would multiply this figure ($80,000) by 0.34% (0.0034) and then divide that figure by 4 (to accommodate for quarterly schedule). In this hypothetical, our self-employed individual would make 4 payments of $68, because $80,000 x 0.0034 = $272 / 4 = $68.
To most people, the MCTMT is shrouded in complexity and uncertainty. If you’re serious about building your practice in NY, you should study the manual on the MCTMT provided by NY State and provide good counsel whenever you can.
Author Bio: Jorgen Rex Olson graduated from Washington State (B.A., 2008) and the Indiana University McKinney School of Law (J.D., 2012). He’s current based in Seattle, WA, and focuses his research on state taxation, 1031 exchanges, real estate and other related areas. He writes for Mackay, Caswell & Callahan, P.C., a tax and business law firm in New York.