An overhaul of the state’s tax code will likely see five different brackets that will generate $1.9 billion in revenue for New York, a source with knowledge of the plan said.

The brackets under consideration are $40,000 and lower; $40,000 to $150,000; $150,000 to $300,000; $300,000 to $2 million and $2 million and higher.

There would be no change for those making less than $40,000, while the rate for those making $2 million and higher will decrease from 8.97 percent to 8.82 percent.

Those high earners would actually be in store for a larger cut if a surcharge is allowed to expire at the end of the month, but pushing this plan through now would allow lawmakers and Gov. Andrew Cuomo to claim they are slashing taxes for nearly everyone.

The $1.9 billion generated from the plan isn’t the full $4 billion that labor and progressive groups wanted. But it does go toward closing an estimated $3.5 billion deficit. It also allows Cuomo to keep his two-year budget appropriation for school and health care spending, which is due to increase by 4 percent in the coming 2012-13 fiscal year.

Assembly Democrats are due to meet privately at 3 p.m. Senate Republicans are due back in town on Wednesday.

Any plan would have to be taken by at least Thursday and there is no activity this morning in legislative bill drafting.

Senate Finance Committee Chairman John DeFrancsico estimated that there was a “75 percent chance” of a special session this week.

UPDATE: Liz adds, for clarity: To be clear, the state already has five tax brackets with a top rate of 6.85 percent that kicks in for joint filers with taxable incomes over $40,000. That’s after factoring in deductions, credits and exemptions. The rates in the lower brackets range from 4 percent to 5.9 percent. Taxpayers paid a flat rate of 6.85 percent when their adjusted gross income exceeds $150,000 – that is, until the temporary PIT increase that is about to expire was approved.

That surcharge raised the personal income-tax rate by the largest percentage amount in nearly half a century. Individuals earning taxable income between $250,000 and $500,000 were required to pay a flat rate of 7.85 percent, and all filers with income of more than $550,000 have paid a flat rate of 8.97 percent.

Again, if the changes Cuomo is now pushing took effect on Jan. 1, the rich would TECHNICALLY be receiving a tax increase because the current PIT surcharge would have expired. That’s why he’s chomping at the bit to get this passed and enacted BEFORE the current rates sunset at the end of the month, because then he can say that everyone got a tax break, thanks to his “fair” restructuring of the tax code.

UPDATE2: The DN’s Ken Lovett has more details on what middle income earners will be paying under this new plan. He reports:

“Those making between $40,000 and $150,000 will pay a rate of 6.45%, down from the current top rate of 6.85%. Those making between $150,000 and $300,000 will pay a rate of 6.65%, down from 6.85%.

“For those making between $300,000 and $2 million, they will pay 6.85%, the current top rate. But Cuomo and legislative leaders will argue that is a drop from 7.85% to 8.97% they were paying under a three-year-old tax surchage on the wealthy due to expire at the end of the year.”

Also, I’m reminded that there might be some disparity when final details are released between what those filing as individuals and those filing jointly will pay.

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