Key Tax Updates from New York State’s 2025–2026 Budget
May 30, 2025
David Neuman, JD
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Written by David Newman, JD |
New York State recently approved its 2025–2026 budget, which includes several important tax updates that could affect both individuals and businesses. Governor Kathy Hochul signed the budget bill into law on May 9, 2025. Many of these changes took effect immediately, making this a good time to review tax planning for this year and beyond.
Key Changes for Individuals
Inflation Refund Credit
New York is offering a one-time tax credit to help offset the effects of inflation. Full-year New York residents for 2023 who are married filing jointly and earned $300,000 or less may qualify for a refund of up to $400. Single filers who earned $150,000 or less may qualify for up to $200. This credit will be automatically applied as a tax overpayment and can either reduce taxes due or increase a refund. Eligibility is based on the 2023 adjusted gross income.
Personal Income Tax Rate Reduction
Tax rates for middle-income earners are being reduced. The state is lowering tax rates for the first five income tax brackets by 0.2 percentage points. These lower rates will be phased in over 2026 and 2027.
High-Income Tax Surcharge Extended
The tax rate for taxpayers earning over $5 million per year, will remain higher than the standard rate. A surcharge of 10.3% applies to income over $5 million, and 10.9% applies to income over $25 million. This surcharge, originally set to expire in 2027, will now continue through 2032.
Business and Real Estate Tax Impacts
Federal Partnership Adjustment Reporting
New York has adopted new reporting rules for partnerships that align with federal audit procedures under the Bipartisan Budget Act of 2015. Partnerships and their partners must report certain IRS audit results to New York within 90 days and pay any additional tax owed within 180 days. This requirement applies even if the federal changes are not reflected on an amended return. Partnerships may elect to pay the tax on behalf of their partners, but doing so requires identifying each partner’s tax classification and sourcing income accordingly. If a partnership lacks sufficient information, it must pay tax on the full amount of the adjustment at the highest individual rate. Interest and penalties apply for late payments.
Estimated Tax Payment Threshold Increase for Corporations
For tax years beginning in 2026, corporate taxpayers will only need to make estimated payments if their expected tax due exceeds $5,000. Previously, this threshold was $1,000.
New Limits for Institutional Real Estate Investors
Institutional investors, such as large investment funds, now face restrictions when buying single- or two-family homes in New York. A mandatory 90-day waiting period must pass from the time a property is listed for sale before one of these investors can make a purchase. These rules apply to tax years beginning on or after January 1, 2025. In addition, institutional investors can no longer claim depreciation or interest deductions on these properties unless the homes are sold to individuals for use as a primary residence or to qualified nonprofit housing organizations.
Other Updates
Payroll Mobility Tax Increase
Employers in New York City and surrounding areas may see higher payroll mobility taxes. Rates vary based on location and payroll size, with the highest rate now reaching 0.895% for employers in the 5 boroughs with quarterly payrolls above $2.5 million.
Workforce Development Incentives
New York extended and expanded the Excelsior Jobs Program, particularly for the semiconductor industry. New or growing companies in this space may qualify for tax credits tied to hiring, investment, and research activities. There’s also a new credit of up to $25,000 per employee for eligible workforce training costs, capped at $1 million for eligible non-semiconductor manufacturing businesses and $5 million for eligible semiconductor manufacturing businesses.
Next Steps for Taxpayers
Because many of these changes are already in effect, taxpayers—both individuals and businesses—should consider how their 2025 and 2026 tax obligations might be affected.
Actions to consider include:
- Reviewing eligibility for the inflation refund credit
- Adjusting estimated tax payments, in light of rate changes or new thresholds
- Reassessing real estate investment strategies in New York if subject to the new waiting periods and deduction limitations
LMC is dedicated to staying updated on these developments and advising clients effectively. For more information or questions, please reach out to your LMC professional.