NYC Tax Abatement: Should You Pay Prevailing Wage?

This is one of the most common questions co-op and condo boards ask themselves once they learn that qualifying for the condominium tax abatement may require paying thousands - or even tens of thousands - more each year to their onsite team.

The answer depends on a few factors, and it is not always easy to reach. I have helped tens of boards make this decision. Getting it right can save your building a lot of money. Getting it wrong can cost a lot. Here is the framework I use to work through it.

1. Confirm That Your Building Is Actually Required to Pay

A development is required to pay its onsite team the prevailing wage if it has 30 or more units and an average assessed unit value above $60,000, or fewer than 30 units and an average above $100,000. So first, check the average assessed value your building is heading into for the next tax year.

How to Calculate the Average Assessed Value

The credit percentage - and your obligation to pay - both hinge on your building's residential average assessed value. To find it, use the following formula:

Average Unit Assessed Value = (Residential Proportion × Total Assessed Value) ÷ Number of Residential Dwelling Units

2. Determine Whether Your Building Employs Onsite Workers

If your building meets the assessed-value threshold, the next question is whether it employs any onsite workers. To answer it, follow the official definition in the law:

“Building service employee” means any person who is regularly employed at a building who performs work in connection with the care or maintenance of such building. ...but shall not include persons regularly scheduled to work fewer than eight hours per week in the building.

A few important things to notice here are:

• The obligation is not limited to W-2 staff the building thinks of as “employees.”
• They must work eight or more hours per week to receive coverage.

3. Cost vs. Benefit Evaluation: How to Do It Right

Calculating the Cost (the Prevailing Wage)

The prevailing wage changes with the job (handyperson or porter) and the employee's tenure in the building, and it usually shifts slightly throughout the year. To estimate it, you need each eligible employee's start date, title, projected weekly hours, annual PTO days, and total benefits (including bonus, housing benefits, and so on).

The prevailing wage has two parts: base pay (minimum cash pay) and supplemental pay (cash pay or benefits).Using the Comptroller's Office figures, you can then calculate the difference and find out exactly how much you need to add to qualify. You can see the state prevailing wage schedules in here.

Calculating the Benefit (the Abatement)

To calculate the benefit, you need to work through three steps.

Step 1 - Determine the credit % by average assessed value. Using the average assessed value you calculated earlier, find your building's tier below. This is the property tax abatement savings per tier:

Step 2 - Assess eligibility, unit by unit.

‍This varies widely from building to building. Only owners who use the unit as their primary residence are eligible. In addition, all of the following must be true for a unit to qualify:

• It is the owner's primary residence (where they actually live).
• The owner holds no more than three units in the same development.
• The unit is owned by an individual -not by an LLC, business, sponsor, or anyone who took over a sponsor's units. (A few narrow exceptions exist for LLCs and limited partnerships in special security situations - see the Security Waiver Application for details.)
• The owner is not receiving the clergy property tax exemption.
• For condos: a deed or property transfer tax form has been filed with the city at nyc.gov/acris. (This usually happens automatically at closing, handled by the owner's attorney or title company.)

Two timing and ownership notes:

• The owner must have purchased the unit on or before January 5 to receive the abatement for the tax year starting July 1. If the unit was purchased after January 5, the owner applies for the following year instead.
• If a trust owns the unit, it must be the primary residence of the trustee, all of the trust's beneficiaries, or the life estate holder.

As a board member, you can't be entirely certain whether every owner uses their unit as a primary residence. If you do decide to apply, the board needs to verify this with owners and collect documentation supporting each owner's primary-residence claim.

Step 3 - Extrapolate the total property tax abatement.

‍Now that you know which owners will receive the abatement and what percentage of credit applies, multiply the credit % by each eligible owner's annual property taxes, then sum those amounts. That gives you the total benefit for the current year.

Because assessed values tend to increase every year - and taxes with them - you can assume the total benefit will grow over time. This gives you a solid approximation of the total savings across all owners. There are variables you won't know exactly (who truly uses a unit as a primary residence, how much taxes will rise next year), but this gets you a reliable estimate of how much your building can save.

4. I Have the Cost and the Benefit - Now What?

Once you have the total benefit and the total cost, you've done a big part of the work - but there are still important questions to ask.

Should You Increase Onsite Team Compensation?

The prevailing wage can be a significant raise for your onsite team. Maybe you have already been thinking about increasing their compensation for a while, and this is your building's opportunity to show appreciation - in this case, raising the wage serve two goals at once.

Can Your Building Support the Higher Monthly Charges?

While owners receive a credit on their taxes, in the immediate term the building will need to increase its budget to cover the higher wage cost - which means owners pay more each month before they see any credit.

How the Benefit Is Distributed Among Owners?

Even if the total credit exceeds the cost, the increased wage cost is borne by all owners, while only eligible owners receive the abatement. If only a small share of owners are eligible, it can feel unfair to those who are not.

Making the Right Decision for Your Building

The NYC real estate tax abatement is a strong incentive - and it can be a win-win for both the building and the onsite team. But it isn't always the right answer, especially when the prevailing wage is significantly higher than what your building currently pays.

At NYC TaxAbate Advisors, we're happy to help you run the numbers so your board can make the best decision - and we can file the abatement renewal on your behalf.