A10093, Middle Class Tax Relief, introduced in New York on April 29, 2022, provides tax relief by removing overtime pay and tips from AGI. Overtime is working beyond 40 hours per week and likely means hourly workers rather than salaried ones.

While the intent might be good if aiming to help people who are seeking jobs with overtime to earn extra money to make ends meet, the reach (and the drop in tax revenue to the state) will be much broader than this.

The “justification” from the bill sponsor: “With inflation on the rise. The Middle Class is struggling. This Legislation would help lighten the load on Middle class families by suspending all sales tax on non exempt food items, no income tax on any work beyond a 41 hour work week and no tax on any tippable wages.”  (there doesn’t seem to be any sales tax aspect to A10093 though)

While aimed at the “middle class” there is no definition offered of that. This bill seems to help a high income earner working overtime or receiving tips for services rendered. Some employers might try to change some of a worker’s salary to tips (with customer assistance) to help their employees get a tax break (if this were to be enacted, which seems unlikely).

What would be better? Use existing rules, such as increasing the state’s earned income tax credit. That would help the group this sponsor seems to want to assist. Or reduce the tax rates for lower income taxpayers.

And think of the compliance issues that would accompany carrying out this proposal? Forms W-2 for New York would need to be modified or have an attachment that goes to the worker and the state showing how much overtime and tip income was earned.

So, a few principles of good tax policy are not satisfied here including equity, simplicity and transparency.

What do you think? Professor Annette Nellen.