New York State’s 2026 Fiscal Year Budget Finally Passes

After months of deliberation, New York State has finally passed its 2026 fiscal year budget. Originally due April 1, 2025, it goes down as the largest budget in the state’s history, totaling $254 billion. While it prioritizes investments across various sectors, including climate initiatives, childcare funding, infrastructure improvements, and public safety, there are various tax-related provisions. Below are some highlights of the key tax implications for the new fiscal year.

• Metropolitan Commuter Transportation Mobility Tax (MCTMT). Beginning July 1, 2025, employers based in New York City (NYC) (Zone 1) and its surrounding counties (Zone 2) – Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester – will see rate changes to their MCTMT liability as part of the state’s plan in invest in its Metropolitan Transportation Authority.

Self-employed individuals earning up to $150,000 will see the tax eliminated in its entirety as of January 1, 2026. The current no tax due threshold is $50,000.

• Temporary Personal Income Tax (PIT). The temporary PIT high-income surcharge, originally set to expire after tax year 2027, has been extended through tax year 2032. The surcharge applies to high-income earners who currently fall within the top three income tax brackets: 9.65% for incomes over $2,155,350, 10.3% for incomes over $5 million to $ 25 million, and 10.9% for incomes over $25 million. In 2032, incomes over $1,077,550 will revert back to 8.82%.
• Tax Cut for Middle-Income New Yorkers. There will be a phased-in tax cut for middle-income New Yorkers in the bottom five income tax brackets (4%, 4.5%, 5.25%, 5.5%, and 6%). The 0.2% reduction will be structured in two phases, with the initial tax cut of 0.1% applicable for tax year 2026 and the second tax cut of an additional 0.1% beginning in tax year 2027. The budget will reduce tax rates for:
  • Joint filers with incomes up to $323,200;
  • Heads of households with incomes up to $269,300; and
  • Single filers and married taxpayers filing separately with incomes up to $215,400.
• Estate Tax Three-Year Gift Addback Rule. Originally enacted in 2014, the estate tax three-year gift addback rule was set to expire on January 1, 2026, but has now been extended. Under this rule, gifts made by an individual within three years of their death are added back into their estate for the purpose of calculating New York State estate tax. This applies to gifts that are taxable for federal gift tax purposes.
• Film Tax Incentives. Productions investing at least $100 million in eligible costs across two or more projects can qualify for an extra 10% credit, totaling 40%, through 2028.
• NYC Musical and Theatrical Production Tax Credit. The $300 million NYC Musical and Theatrical Production Tax Credit program, originally set to expire at the end of tax year 2025, has been extended through tax year 2027.
• Inflation Refund Checks. The budget dedicates credit payments to certain eligible taxpayers who filed 2023 resident tax returns. Those with the filing status:
  • Married filing jointly or qualifying surviving spouse earning up to $150,000, will receive $400;
  • Married filing jointly or qualifying surviving spouse with incomes between $150,000 and $300,000 will receive $300;
  • Single, married filing separately, or head of household earning up to $75,000 will receive $200; and
  • Single, married filing separately, or head of household with incomes between $75,000 and $150,000 will receive $150.

To the extent such payments are included in gross income for federal income tax purposes, it is not subject to New York income tax.

• Corporate Estimated Tax Threshold. Effective for tax years beginning on or after January 1, 2026, the threshold at which corporate taxpayers are required to make estimated tax payments will increase from $1,000 to $5,000. As a result, corporations with a prior-year tax liability of $5,000 or less will no longer be required to make quarterly estimated tax payments.
• Federal Unemployment Insurance (FUTA) Debt Payment. The state has agreed to pay off about $8 billion in FUTA debt, largely accrued during the COVID-19 pandemic. By resolving the loan balance, New York employers will be relieved of (1) the added FUTA taxes they pay each year that the state carries a debt balance, and (2) the state unemployment insurance surcharge they pay to assist with the annual interest payments the state owes the federal government. The state estimates that employers across New York will save roughly $300 per worker annually.
• NY Reporting of Federal Administrative Adjustment Requests (AARs). The budget mandates that partnerships must report federal audit changes and AARs to the state within 90 days after the final federal determination date or the filing of the AAR. A similar provision was also included for New York City.
• Residential Real Estate Reform. New provisions prohibit institutional investors—those managing assets of $30 million or more and owning at least 10 single-family or two-family homes—from claiming certain depreciation tax deductions on such properties. Further, they are also generally prohibited from claiming interest deductions. However, an interest deduction is allowed if a home is sold to an affordable housing nonprofit or to an individual buyer who intends to live in the home. These provisions take effect for taxable years beginning on or after January 1, 2025.

Of note, the state budget does not include an extension of the pass-through entity tax (PTET) election – a workaround for the federal $10,000 state and local tax deduction cap. The Governor’s original proposal would have extended the election date to September 15 from March 15.

Finally, New York legislators noted that there is potential for federal funding cuts, which are not fully accounted for in the state’s budget. Consequently, lawmakers may have to revisit the budget later in the year if federal aid is reduced.

For more information on the tax changes contained in New York’s 2026 fiscal year budget and their implications on you and your business, please contact Alan Goldenberg, Principal and Leader of State and Local Tax and Tax Controversy groups, or your Anchin Relationship Partner.