Tax Provisions in New York State’s Fiscal Year 2026 Budget

After more than a month of delays and extensions, New York State has finally passed its budget for the fiscal year that began on April 1 and will end on March 31, 2026. Assembly Bill A03009C was passed and signed into law by Gov. Kathy Hochul on May 9. This budget has a number of items that affect both individual and business taxes in New York, which are discussed below.

Tax Credits & “Inflation Refunds” for Residents

Full-year residents of New York during 2023 who reported less than $150,000 in NY adjusted gross income for the year ($300,000 for joint filers) will receive an “inflation credit” against their 2025 state tax liability as follows:

Beginning in mid-October, New York State will make advance payments of the credit to individual taxpayers via “inflation refund” checks. Taxpayers eligible for the credit but who do not receive a check will receive a refundable credit on their 2025 New York individual tax return.

Empire State Child Tax Credit

For tax years beginning on or after January 1, 2025, a child tax credit of $1,000 is available for each child up to three years old and $330 for each child between four and seventeen years old. For tax years beginning on or after Jan. 1, 2026, through Dec. 31, 2027, a child tax credit of $1,000 is available for each child up to three years old and $500 for each child between four years old and seventeen years old.

Individual Tax Bracket Changes

New York has slightly reduced the five lowest tax rates imposed on individual taxpayers’ incomes for 2025 and 2026 by .2% each, while extending the “temporary” higher-income tax rates of up to 10.9% imposed on incomes of more affluent taxpayers for another five years. The changes result in an overall reduction to state income tax for married couples filing jointly with taxable incomes of up to $323,200 ($269,300 for heads of household and $215,400 for single or separately filing individuals). Taxpayers with incomes above those amounts will see the tax savings gradually and perhaps completely reduced via the unique way New York’s income tax rates are structured to take away the benefit of lower tax brackets for higher-income individuals.

Metropolitan Commuter Transportation District (MCTD) Payroll Tax Changes

Employers and self-employed individuals engaged in business within the five boroughs of New York City and its surrounding counties are subject to a payroll tax equal to a percentage of their payroll expense. The state budget bill makes several changes to this tax which go into effect on July 1, 2025, as follows:

Zone 1 (the five NYC counties/boroughs), the tax rates are as follows based on quarterly payroll expenses:

• > $312,500 and ≤ $375,000: 0.055%
• > $375,000 and ≤ $437,500: 0.115%
• > $437,500 and ≤ $2,500,000: 0.600%
• > $2,500,000: 0.895%

Zone 2 (Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester counties), the tax rates are as follows based on quarterly payroll expenses:

• > $312,500 and ≤ $375,000: 0.055%
• > $375,000 and ≤ $437,500: 0.115%
• > $437,500 and ≤ $2,500,000: 0.340%
• > $2,500,000: 0.635%

For individuals with net earnings from self-employment attributable to the MCTD greater than $150,000, effective Jan. 1, 2026, the tax rate is 0.60% in Zone 1 and 0.34% in Zone 2. For individuals under the threshold after Jan. 1, 2026, no tax is due.

Other New York Tax Provisions

The new law also contains several other tax provisions, including:

• Restricting “institutional investors” from acquiring singe and two-family residential properties and denying interest and depreciation deductions to them
• Substantially narrowed relief from personal liability for sales & use taxes owed by Limited Partnership’s and LLCs for their owners/investors
• Expansion of the low-income housing credit program through April 1, 2029
• An increase in the corporation estimated tax threshold from $1,000 to $5,000 starting in 2026
• Partial adoption of the federal centralized partnership audit rules
• A provision declaring that the Department’s communicating with taxpayers via electronic means does not provide additional appeal rights
• A three-year extension on New York’s gift tax add-back rule
• An extension on the sales tax exemption on vending machine sales through May 31, 2026
• Expansion of the historic tax credit program and making historic tax credits transferable
• Extension & expansion of the Excelsior Jobs Program
• New R&D and workforce training incentive programs for the semiconductor industry
• Expansion of the Empire State Jobs Retention Program
• Expansion, enhancement and modifications of the state’s film credit program
• Technical changes to the Newspaper and Broadcast Media jobs program
• Expansion and enhancement of the digital gaming credit program
• Extension and enhancement of the New York City musical and theatrical product tax credit through 2027
• Extension of the clean heating fuel tax; alternative fuels and electric vehicle recharging property; workers with disability; hire a vet and farm workforce retention credits through 2028

Noticeably missing from the legislation include the proposed changes to New York’s Pass-Through Entity Tax (PTET), which would have allowed for additional time to make the election (up to the extended due date) and changes estimated tax payment requirements. Additionally, the New York City Relocation and Employment Assistance Program (REAP) tax incentive has not been extended and therefore is scheduled to sunset on June 30, 2025. While there is movement underfoot in the New York state legislature to bring these changes to the floor their fate remains uncertain.

For additional information regarding the New York budget, New York tax provisions and how it may affect you or your business, contact a CBIZ professional.