Freyman & Freyman Tax Corner
January 28, 2010
New MTA Tax for Self-Employed Individuals
In May 2009, New York State enacted the Metropolitan Commuter Transportation Mobility Tax (Commuter Tax) to fund the Metropolitan Transportation Authority and reduce fare hikes and service cuts. This new tax is imposed on certain employers and self-employed individuals (including partners in partnerships, and LLC members) who engage in income producing activities within the Metropolitan Commuter Transportation District (District). Employers who engage a payroll service provider for their regular payroll processing will have the tax computed and withheld. The payroll service will then remit the payment over to the Commissioner of Taxation and Finance. All other self-employed individuals (including partners and members of LLCs and LLPs) must compute and remit tax on their own.
Tax rate for self-employed individuals:
The tax rate is 0.34% (.0034) of the net earnings from self-employment. You may use federal Schedule SE (Form 1040) as a guide in calculating your estimated net earnings from self-employment (or see our SE Tax Spreadsheet in Excel Corner.
The amount of income that is subject to the tax:
The tax is computed on net earnings from self-employment, which is earned while working within the District, if this income exceeds $10,000 for any given tax year. Any income subject to federal self-employment taxes will be subject to this tax. Taxpayers who conduct business activity outside of the District must determine what portion of their self-employment income, if any, is earned within the District.
The Metropolitan Commuter Transportation District (District) defined:
The District includes all five boroughs of New York City, and the counties of Nassau, Rockland, Suffolk, Orange, Putnam, Dutchess and Westchester.
Effective date of the Commuter Tax:
The tax is effective March 1, 2009. For 2009 only, the tax is based on ten-twelfths of net earnings for the whole year (this eliminates the need to identify income earned before and after the March 1 date.)
Payment frequency:
Self-employed individuals must make quarterly estimated payments, and file an annual return for the Commuter tax by April 30th of each calendar year. Estimated payments must be made on or before April 30th, July 31st and October 31st of the current year, and January 31st of the following year. Estimated tax payments are required even if the projected tax is small (there is no de minimus exception), but estimates can be prepaid. Estimated tax payments for the Commuter Tax are separate from estimated personal income tax payments, and cannot be combined.
Payments due dates:
The first payment required for 2009 is due November 2, 2009. This required payment is equal to 75% of the total 2009 estimated tax. The following payment is due February 1, 2010.
Forms that must be filed quarterly and annually:
Estimated payments can be made by check or money order and filed with Form MTA-5 (Estimated Metropolitan Commuter Transportation Mobility Tax Payment Voucher). Any balance due with the annual filing can be made by check or money order and filed with Form MTA-6 (Metropolitan Commuter Transportation Mobility Tax Return).
Alternately, filings can be made online through New York State’s Online Tax Center at http://www.nystax.org/. There will be a six-month extension available for the annual filing via Form MTA-7 (extensions due not extend time to pay any tax due, only the time file). Currently New York State has not yet finalized these forms or their instructions.
Partner requirements:
Partners in a partnership (or members in an LLC treated as partnerships) are subject to the tax based on their share of the partnership net earnings from self-employment allocated to the District. Partnerships must provide to the partners all the information necessary for the partners to compute and remit the correct amount of MCTMT.
Group filing for partnerships:
As an alternative to each partner making estimated Commuter Tax payments and filing separate returns, a qualifying partnership may file a consolidated group return. Permission to file a group return must be obtained in advance, and individual partners must authorize one partner to file and remit payment on their behalf. A group application must be filed on Form MTA-599. Estimated tax payments are reported by the partnership on Form MTA-5 and a group annual return is filed on Form MTA-505.
At least two partners must opt-in to a group filing by September 15 of each year, but other partners may opt-in before the first estimated tax payment is due on November 2, 2009. A partner can qualify to participate in the group return provided that (1) the partner has no other self-employment income, or (2) any other self-employment income from another partnership is reported on a group return by that partnership.
Note: Overpayments of group Commuter Tax cannot be refunded, but will be applied to next year’s estimated tax.
Non-resident of New York State:
The Commuter Tax is required on income from all business activities performed within the designated Districts, regardless of the residency of the individual/partner. However, partnerships doing business in the District are required to make estimated Commuter Tax payments on behalf of individual partners who are non-residents of New York State. Estimated payments are not required if (1) the estimated Commuter Tax for the non-resident partner is $300 or less; (2) the partnership files a group return for all partners (see above), or (3) the non-resident partner certifies that he will make his own Commuter estimated tax payments. The required forms are not yet available.
Deducting the Commuter Tax payments when filing individual federal or state income taxes:
Commuter Tax payments may be deducted as an itemized deduction along with other taxes such as state income or real property taxes on the individual’s federal income tax return. Payments cannot be deducted on state tax returns.
Penalties and interest for non-payment:
The same tax penalties that apply to underpayment of individual income tax and estimated individual income tax apply to the underpayment of commuter tax. Interest is charged on late estimated tax payments at the same rates that apply to personal income tax.
Avoid penalties:
To avoid a penalty for underpayment of MCTMT for the tax year your payments must be made on time and the total amount of MCTMT paid must be:
•at least 90% (66 2/3% for farmers and fisherman) of the amount of MCTMT due for the tax year; or
•100% (110% of that amount if you are not a farmer or fisherman and your net earnings from self-employment allocated to the Commuter Tax as shown on the prior year’s Commuter Tax return are more than $150,000).
Note: For tax year 2009, the second requirement does not apply. To compute the penalty yourself, use Form MTA-9, Underpayment of Estimated Metropolitan Commuter Transportation Mobility Tax, and its instructions, Form MTA-9-I. Enter the penalty on your return (Form MTA-6) and attach Form MTA-9 to it.
Final note:
It is important that self-employed individuals and partners in partnerships (or members in LLCs treated as partnerships) become familiar with this new tax and all of its requirements. All of the required payments and filings are due in addition to an individual’s federal and state personal income tax obligations. All of the payments and filings are due on dates different from any personal income tax filing date. Please reach out to our tax service team to learn how these rules affect you, and what you may need to do.
January 28, 2010
New MTA Tax for Self-Employed Individuals
In May 2009, New York State enacted the Metropolitan Commuter Transportation Mobility Tax (Commuter Tax) to fund the Metropolitan Transportation Authority and reduce fare hikes and service cuts. This new tax is imposed on certain employers and self-employed individuals (including partners in partnerships, and LLC members) who engage in income producing activities within the Metropolitan Commuter Transportation District (District). Employers who engage a payroll service provider for their regular payroll processing will have the tax computed and withheld. The payroll service will then remit the payment over to the Commissioner of Taxation and Finance. All other self-employed individuals (including partners and members of LLCs and LLPs) must compute and remit tax on their own.
Tax rate for self-employed individuals:
The tax rate is 0.34% (.0034) of the net earnings from self-employment. You may use federal Schedule SE (Form 1040) as a guide in calculating your estimated net earnings from self-employment (or see our SE Tax Spreadsheet in Excel Corner.
The amount of income that is subject to the tax:
The tax is computed on net earnings from self-employment, which is earned while working within the District, if this income exceeds $10,000 for any given tax year. Any income subject to federal self-employment taxes will be subject to this tax. Taxpayers who conduct business activity outside of the District must determine what portion of their self-employment income, if any, is earned within the District.
The Metropolitan Commuter Transportation District (District) defined:
The District includes all five boroughs of New York City, and the counties of Nassau, Rockland, Suffolk, Orange, Putnam, Dutchess and Westchester.
Effective date of the Commuter Tax:
The tax is effective March 1, 2009. For 2009 only, the tax is based on ten-twelfths of net earnings for the whole year (this eliminates the need to identify income earned before and after the March 1 date.)
Payment frequency:
Self-employed individuals must make quarterly estimated payments, and file an annual return for the Commuter tax by April 30th of each calendar year. Estimated payments must be made on or before April 30th, July 31st and October 31st of the current year, and January 31st of the following year. Estimated tax payments are required even if the projected tax is small (there is no de minimus exception), but estimates can be prepaid. Estimated tax payments for the Commuter Tax are separate from estimated personal income tax payments, and cannot be combined.
Payments due dates:
The first payment required for 2009 is due November 2, 2009. This required payment is equal to 75% of the total 2009 estimated tax. The following payment is due February 1, 2010.
Forms that must be filed quarterly and annually:
Estimated payments can be made by check or money order and filed with Form MTA-5 (Estimated Metropolitan Commuter Transportation Mobility Tax Payment Voucher). Any balance due with the annual filing can be made by check or money order and filed with Form MTA-6 (Metropolitan Commuter Transportation Mobility Tax Return).
Alternately, filings can be made online through New York State’s Online Tax Center at http://www.nystax.org/. There will be a six-month extension available for the annual filing via Form MTA-7 (extensions due not extend time to pay any tax due, only the time file). Currently New York State has not yet finalized these forms or their instructions.
Partner requirements:
Partners in a partnership (or members in an LLC treated as partnerships) are subject to the tax based on their share of the partnership net earnings from self-employment allocated to the District. Partnerships must provide to the partners all the information necessary for the partners to compute and remit the correct amount of MCTMT.
Group filing for partnerships:
As an alternative to each partner making estimated Commuter Tax payments and filing separate returns, a qualifying partnership may file a consolidated group return. Permission to file a group return must be obtained in advance, and individual partners must authorize one partner to file and remit payment on their behalf. A group application must be filed on Form MTA-599. Estimated tax payments are reported by the partnership on Form MTA-5 and a group annual return is filed on Form MTA-505.
At least two partners must opt-in to a group filing by September 15 of each year, but other partners may opt-in before the first estimated tax payment is due on November 2, 2009. A partner can qualify to participate in the group return provided that (1) the partner has no other self-employment income, or (2) any other self-employment income from another partnership is reported on a group return by that partnership.
Note: Overpayments of group Commuter Tax cannot be refunded, but will be applied to next year’s estimated tax.
Non-resident of New York State:
The Commuter Tax is required on income from all business activities performed within the designated Districts, regardless of the residency of the individual/partner. However, partnerships doing business in the District are required to make estimated Commuter Tax payments on behalf of individual partners who are non-residents of New York State. Estimated payments are not required if (1) the estimated Commuter Tax for the non-resident partner is $300 or less; (2) the partnership files a group return for all partners (see above), or (3) the non-resident partner certifies that he will make his own Commuter estimated tax payments. The required forms are not yet available.
Deducting the Commuter Tax payments when filing individual federal or state income taxes:
Commuter Tax payments may be deducted as an itemized deduction along with other taxes such as state income or real property taxes on the individual’s federal income tax return. Payments cannot be deducted on state tax returns.
Penalties and interest for non-payment:
The same tax penalties that apply to underpayment of individual income tax and estimated individual income tax apply to the underpayment of commuter tax. Interest is charged on late estimated tax payments at the same rates that apply to personal income tax.
Avoid penalties:
To avoid a penalty for underpayment of MCTMT for the tax year your payments must be made on time and the total amount of MCTMT paid must be:
•at least 90% (66 2/3% for farmers and fisherman) of the amount of MCTMT due for the tax year; or
•100% (110% of that amount if you are not a farmer or fisherman and your net earnings from self-employment allocated to the Commuter Tax as shown on the prior year’s Commuter Tax return are more than $150,000).
Note: For tax year 2009, the second requirement does not apply. To compute the penalty yourself, use Form MTA-9, Underpayment of Estimated Metropolitan Commuter Transportation Mobility Tax, and its instructions, Form MTA-9-I. Enter the penalty on your return (Form MTA-6) and attach Form MTA-9 to it.
Final note:
It is important that self-employed individuals and partners in partnerships (or members in LLCs treated as partnerships) become familiar with this new tax and all of its requirements. All of the required payments and filings are due in addition to an individual’s federal and state personal income tax obligations. All of the payments and filings are due on dates different from any personal income tax filing date. Please reach out to our tax service team to learn how these rules affect you, and what you may need to do.
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