NYC Metropolitan Commuter Tax District (MCTD): What SaaS Startups Need to Know

2026-01-15

If you run a SaaS startup with employees in NYC (or nearby suburbs), there’s a New York–specific payroll tax that often gets missed: the Metropolitan Commuter Transportation Mobility Tax (MCTMT).

It’s not income tax and it’s not sales tax. It’s a quarterly employer-paid payroll tax tied to where employees perform services in the NYC metro region (the Metropolitan Commuter Transportation District (MCTD)).

Last verified: Jan 2026

What Is the MCTD (and Why It Matters)

The MCTD is the geographic region New York uses for MCTMT. For purposes of calculating the tax, the MCTD is divided into two zones. New York’s overview page includes the current zone structure and links to county lists and rules: MCTMT overview.

Zone 1 (NYC counties)

New York (Manhattan)
Bronx
Kings (Brooklyn)
Queens
Richmond (Staten Island)

Zone 2 (surrounding metro counties)

Rockland
Nassau
Suffolk
Orange
Putnam
Dutchess
Westchester

If you have payroll expense for covered employees allocated to Zone 1 and/or Zone 2, you may have an MCTMT filing obligation.

Who Owes MCTMT (Most SaaS Startups)

Employers (most common)

You must file and pay MCTMT for a calendar quarter if:

you’re required to withhold New York State income tax from wages, and
you have more than $312,500 in payroll expense for covered employees across both MCTD zones in that quarter.

Source: NYS MCTMT employer guidance.

Important detail: the $312,500 threshold is tested on total MCTD payroll (Zone 1 + Zone 2 combined). Once you’re subject, the tax is calculated separately by zone using different rate tables.

Self-employed founders / partners (less common)

MCTMT can also apply to certain self-employed individuals engaging in business within the MCTD. The state maintains a separate page for individual definitions and scope: MCTMT for self-employed individuals.

The Core Rule: When Do You Cross the Threshold?

Think of MCTMT as a two-step test each quarter:

Step 1: Are you subject this quarter?

Add up payroll expense for all covered employees allocated to Zone 1 and Zone 2.
If total MCTD payroll is $312,500 or less, you’re not subject for the quarter.
If total MCTD payroll is more than $312,500, you’re subject for the quarter.

Step 2: Calculate tax by zone

Apply Zone 1 rates to Zone 1 payroll expense.
Apply Zone 2 rates to Zone 2 payroll expense.
Add the two amounts.

This framework is described in New York’s employer guidance: MCTMT employer rules.

What Counts as Payroll Expense

New York defines payroll expense as a covered employee’s wages and compensation subject to Social Security (or railroad retirement) tax, but with no annual cap applied.

Source: Payroll expense definitions.

Also important: this is an employer-paid tax. It is not withheld from employee paychecks.

Who Is a Covered Employee

A covered employee is an employee whose services are allocated to the MCTD (and for zone calculations, allocated to Zone 1 or Zone 2). New York provides the definition and allocation rules here: Covered employee definitions.

Practical translation for SaaS startups:

Employees working primarily in NYC are typically Zone 1.
Employees working in the surrounding MCTD counties are typically Zone 2.
Hybrid and multi-location roles require a consistent allocation approach.

MCTMT Rates (Current as of Jan 2026)

Rates are tiered based on quarterly payroll expense in each zone. The state’s employer guidance explains that rates differ between zones and are based on payroll expense in that zone: MCTMT employer guidance.

Use the current rate tables in the official instructions when preparing the return: Instructions for Form MTA-305 (PDF).

Examples (Common SaaS Scenarios)

These examples are illustrative only. Always confirm your zone allocations and use the current rate tables in the official instructions.

Example 1: One NYC employee, under threshold

Zone 1 payroll: $120,000
Zone 2 payroll: $0
Total MCTD payroll: $120,000

Result: Not subject (total is not more than $312,500). No MCTMT filing required for that quarter, consistent with NY’s guidance that employers not subject for a quarter are not required to file for that quarter: Employer filing rule.

Example 2: NYC + suburban team, barely over threshold

Zone 1 payroll: $180,000
Zone 2 payroll: $160,000
Total MCTD payroll: $340,000 (subject)

Zone 1 tax (assuming the lowest bracket applies): $180,000 × 0.00055 = $99

Zone 2 tax (assuming the lowest bracket applies): $160,000 × 0.00055 = $88

Total due: $187 for the quarter

Example 3: Scaling NYC engineering org

Zone 1 payroll: $1,200,000
Zone 2 payroll: $0
Total MCTD payroll: $1,200,000 (subject)

Zone 1 tax (assuming the mid bracket applies): $1,200,000 × 0.0060 = $7,200 due for the quarter

Filing and Payment Deadlines (Quarterly)

MCTMT is filed quarterly. New York notes there are no extensions of time to file or pay: Employer guidance.

The quarterly return is Form MTA-305, which you can file online via Web File.

How to File

Most employers file Form MTA-305. New York provides a direct Web File page here: Web File Form MTA-305.

If you use a PEO or similar pay-agent structure, New York maintains separate guidance: Professional employer organizations (PEOs) and MCTMT.

Do Payroll Providers Handle This (Gusto, Rippling, ADP, PEOs)?

Often yes, but don’t assume it is fully handled without checking. Even when a payroll provider calculates and remits the tax, the filing obligation and setup details still matter.

Here are the most common failure points:

PrompTax changes how payments are made, not whether you file

If you participate in PrompTax, New York is explicit that all PrompTax program participants are still required to file a quarterly MCTMT return, Form MTA-305.

Source: MCTMT PrompTax page.

New York also notes that an employer can enroll in PrompTax for withholding but not for MCTMT PrompTax, in which case MCTMT payments are made with the quarterly return.

Source: MCTMT PrompTax page.

Confirm who files Form MTA-305

Some providers file MTA-305 on your behalf. Others calculate the tax and prepare the return, but require the employer to submit it. Your fastest check is to look for an explicit statement in your payroll provider’s New York tax filing coverage and confirm that MTA-305 is included.

If you want the authoritative filing mechanism regardless of provider, use NY’s Web File: Web File Form MTA-305.

Employee work location setup drives Zone 1 vs Zone 2

Because the tax is calculated separately by zone, the accuracy of county/work location fields matters. This is especially important for hybrid employees and employees who moved mid-quarter.

New York’s official covered employee allocation rules are here: Covered employee definitions.

Does the Federal R&D Tax Credit Affect MCTMT?

MCTMT is a New York payroll tax. It does not get reduced by the federal R&D credit and it is not the payroll tax the federal payroll offset applies to.

Where there is a real connection is operational:

If you are claiming the federal R&D credit, qualified research expenses often include wages for employees performing qualified services. Source: IRS audit techniques guide on Section 41 QREs.
Some qualified small businesses can elect to apply a portion of the federal R&D credit against the employer share of Social Security tax using Form 8974 (attached to quarterly employment tax returns). Sources:

That payroll tax offset is federal and applies to specific federal payroll taxes. MCTMT is a separate New York tax administered by New York State for the MTA: MCTMT overview.

Practical takeaway:

MCTMT can be an additional employer payroll cost for teams with NYC-area employees.
If you are also building an R&D credit file, the same payroll data (employee roles, time allocation, wages) is often the backbone of both processes, even though one is a New York payroll tax and the other is a federal credit calculation.

If you want help building and documenting your R&D credit (including the payroll tax offset eligibility and supporting documentation), Afternoon offers an R&D tax credit product.

Practical Checklist (Quarter-End)

At each quarter-end:

Identify covered employees (anyone allocated to Zone 1 or Zone 2)
Compute Zone 1 payroll expense and Zone 2 payroll expense using the state definition: Payroll expense definitions
Confirm whether total MCTD payroll exceeds $312,500: Employer threshold rule
Apply the correct zone-based rate tiers using the current tables: MTA-305 instructions (PDF)
Confirm PrompTax enrollment status for MCTMT specifically if you use PrompTax: MCTMT PrompTax page
Confirm who files the quarterly return and that Form MTA-305 is actually submitted: Web File Form MTA-305
Document your allocation method for hybrid / multi-location roles using the state’s covered employee rules: Covered employee definitions

Summary

Topic	Details
What it is	Quarterly employer-paid payroll tax tied to work performed in the NYC metro region
MCTD zones	Zone 1 = NYC counties, Zone 2 = surrounding metro counties
When it applies	If total MCTD payroll expense exceeds $312,500 in the quarter and you’re required to withhold NYS income tax
What payroll expense means	Wages/comp subject to Social Security or railroad retirement tax, with no annual cap: https://www.tax.ny.gov/bus/mctmt/def_ps.htm
Filing form	Form MTA-305: https://www.tax.ny.gov/bus/mctmt/webmta305.htm
PrompTax note	PrompTax participants still must file MTA-305: https://www.tax.ny.gov/bus/mctmt/prompt.htm
R&D credit tie-in	Separate from MCTMT, but payroll data often supports both MCTMT compliance and federal R&D credit documentation