While there are two distinct measures in the state’s budget for getting around the SALT limit, the more important measure replaces a portion of the state income tax with an employer-side payroll tax. Under this plan, an employer would pay a 5 percent payroll tax to the government, similar to the employer-side payroll tax they pay now at the state level for workers’ compensation and unemployment insurance and at the federal level for Social Security and Medicare.
Economists typically expect that an employer-side payroll tax will come out of wages. They don’t care whether they pay wages to the worker or taxes to the government. This means that if an employer paid a 5 percent payroll tax on a worker’s $200,000 salary, this amount ($10,000) would come out of the workers’ paycheck. Instead of $200,000 a year, this worker would get $190,000 a year.
If you’re wondering why a worker would ever want to see their pay cut by $10,000, you have to look more closely. When the worker was being paid $200,000, she had to pay $10,000 in taxes to New York State. Now she is only earning $190,000, but doesn’t owe any money in taxes to New York State. This means that her pay, net of state taxes, is exactly the same.
What’s more, she is better off now when it comes to federal taxes. Instead of being taxed on $200,000, she will only pay federal taxes on $190,000. Since this person would likely be in the 32 percent bracket, this tax shift would save her $3,200 on her federal taxes. And, as a neat twist, she will get these tax savings even if she doesn’t itemize on her federal returns. [Source]