We Answer Your Questions About the Circuit Breaker
Q. How does the circuit breaker actually work?
A. Step 1: The taxpayer pays each of his property tax bills in full when due (town/county taxes in January, school tax in September).
Step 2: The taxpayer then applies for the tax credit as part of his NYS income tax return filed early the next calendar year. The amount of the credit will first be offset against any NYS income tax liability, after which any credit remaining will be refunded. The calculation will probably be handled via a worksheet and schedule similar to the IT-214 Form “Real Property Tax Credit”, which is part of the NYS Resident Income Tax packet and used for the existing, very low income circuit breaker.
The whole process is handled confidentially between each individual taxpayer and the NYS Tax Department. Local assessors and other local officials should not normally become involved.
Q. How do I figure out what my “taxes paid” were? Do I have to deduct my STAR benefit?
A. The Basic STAR and Enhanced STAR remain in place, but one or the other (depending on your eligibility) will have already been deducted and factored into your school tax bill.
The same pertains to any local exemptions (e.g. seniors, veterans) which you may receive from your municipality. They are already deducted from your municipality’s tax bill.
Q. What is considered "household income"?
A. It is basically the federal adjusted gross income (AGI) of all persons residing in the home, plus non-taxable income such as municipal bond interest that would not be included in the AGI, less some exemptions.
Q. My calculation shows I won’t get any benefit. Why should I support the bill?
A. First, make sure you are including ALL ad valorem taxes, not just the school tax.
The bill relief is “targeted” to those who need it the most, based on the percentage of income paid in property tax on the home.
This is in contrast to STAR, where everyone in a school taxing district gets the same dollar amount regardless of the tax bill.
If you do not benefit at this time, you could quickly benefit from the bill in the future if, for example, you have a two income household and lose one income, or you retire, or your town has a revaluation and your assessment goes up far more than average. In that sense it acts something like an insurance policy.
Q. If the state is paying for this, will I end up paying more in income tax to pay for this circuit breaker?
A. Highly unlikely for those who would meet this circuit breaker’s income eligibility limits ($250,000 or less).
The bill is designed to augment the Basic and Enhanced STAR programs. Its cost would be slightly less than the Middle Class STAR rebate check program in the early years, and perhaps $1.5 billion more when fully phased in. In their 12 years of existence, the Basic and Enhanced STAR programs, whose total cost is in the $4 billion to $5 billion range, have not caused any permanent income tax increase.
Q. Isn't this just a shift from local to state taxes? What good does that do?
A. The circuit breaker portion of the Omnibus relief and reform bill is designed as a relief mechanism, not reform of the property tax system. Reform follows in the second part of the bill.
The antiquated, inherently inequitable system is nowadays literally forcing people from their homes. The circuit breaker bill will help residents keep their homes while we try to work out the far more complex measures involved in long term reform such as a change in the school funding system to significantly reduce the school property tax.
Such reform will remain essential, and the reform portion of this same Omnibus bill calls for a meaningful infusion of additional state funding, dedicated to reducing a corresponding amount of the property tax, over the decade from 2012 to 2022.
It is also important to note that, while the bill does not by itself control costs, neither will it lead to the kind of increase that STAR is generally considered to have caused in overall local school spending. That is because the relief under this bill is handled as a confidential tax credit, the details of which will not be readily available to schools or municipalities the way STAR is.
Finally, if and when fundamental reform is achieved and leads to a reduction in property taxes (such as from a transition to state funding of schools), the cost of this bill will drop, thereby helping to offset the costs of the transition.
Q. Won't taxpayers who get relief under this bill lose interest in trying to control rising costs and budgets?
A. We don’t think so. They will still be paying 30% of any increase, creating an incentive to control costs, as with a health insurance co-pay. And they will still pay their entire tax up front while waiting for the tax credit, so they will remain conscious of what the entire increase is.
Q. Why do I have to live in the same home for five years before becoming eligible?
A. The five-year requirement is a reduction from the ten-year requirement included in earlier versions of the circuit breaker.
Some period of residency is considered necessary to discourage someone from buying a more expensive home than he otherwise might. In most cases a purchaser buying a home he can afford at that time will not see a drastic change in that situation within a five year period, although it can of course happen.
The length of this requirement is something that could receive additional scrutiny as the bill moves forward, although at least some such requirement seems justified.
Q. We live mostly on social security and don't normally even have to file an income tax return. How am I going to benefit from a tax credit?
A. It is a "refundable" credit, i.e., the full amount will be refunded to you even if you had no income tax liability. You do, of course, have to file the return to claim the credit and refund.
Q. I'm not a permanent New York State resident but have had a summer cottage here for 30 years and may now have to sell because of the extraordinary property tax increases of recent years. Can't I get some help under this bill?
A. The bill is designed to replace the Middle Class STAR Rebate Check program, whose benefit was also limited to permanent residents.
It is comparable to the practice of most other states, who limit such relief programs to their permanent residents. Businesses also receive no benefit under this bill.
You should understand, though, that this bill will at least NOT INCREASE your property tax, or that of other property owners not covered.
As taxpayer advocates we understand the many contributions second homeowners make to our communities and the importance of second homes to our local economy. We should make sure that they and other property owners are not driven out of the state by exorbitant property taxes. This is one of the reasons we continue to advocate for school funding reform to remove it substantially from the property tax.