Tax Provisions of Interest in the Enacted 2025-26 New York Budget Bill

It’s hard for New York tax issues to get any bandwidth with the federal government turning on tariffs, turning off tariffs, arguing about SALT deduction caps, proposing to take away pass-through entity taxes for certain businesses, etc. But time marches forward, and Albany’s annual budget turmoil with it. This year’s version ended a bit later than most thought it would. Some would say, “A good budget is better than an on-time budget.” But we’ll let you judge whether this year’s budget was worth the wait. 

Here is our take on most of the tax provisions that were in Assembly Bill 3009-C, enacted on May 8 and signed into law by the Governor on May 9 (2025 Laws of New York Chapter 59) (the “Budget”):

A One-Time Inflation Refund Credit: Part A of the Budget amended § 606 of the Tax Law to allow for a new one-time inflation refund credit against personal income tax for certain taxpayers for the 2025 tax year. To be eligible for the credit, a taxpayer must (1) have been a full-year resident of the state in 2023, (2) had New York adjusted gross income of $300,000 or less (if married filing jointly) or $150,000 or less (if single or married filing separately) in 2023, and (3) have not been claimed as a dependent by another taxpayer in 2023. The credit amount varies between $150 and $400, depending on the taxpayer’s adjusted gross income and filing status, and will be treated as an overpayment of tax to be credited or refunded in 2025. 

Tax Cuts and an Extension of the Temporary Personal Income Tax (PIT) High Income Surcharge: Part B of the Budget amended § 601(a) of the Tax Law to provide for small rate reductions for lower-income taxpayers in two phases occurring in 2026 and 2027-2032. But beginning with the 2026 tax year, those with taxable income over $2,155,350 for joint filers and $1,077,550 for single/separate filers will see their rates increase (up to 10.9%), until 2033, when the top rate is scheduled to drop back down to 8.82%. Under prior law, the premium rates on high earners were supposed to sunset after 2027. 

Part B also adds an alternative tax table benefit recapture that is applicable to tax years 2023 through 2032.

Enhance the Empire State Child Credit for Three Years: Part C of the Budget amends § 601(c)(1) of the Tax Law to expand eligibility for the Empire State Child Credit and increase credit amounts for the years 2025-2027 in an effort to combat child poverty. The refundable credit amounts are as follows: $1,000 for each qualifying child under the age of 4 in 2025-2027, $330 for each child between the ages of 4 and 17 in 2025, and $500 for a child between the ages of 4 and 17 in 2026-2027. Ratable reductions in the credits are triggered for taxpayer parents who earn in excess of a threshold amount. The threshold amounts for the different taxpayer categories are $110,000 for married-filing-jointly taxpayers, $75,000 for head-of-household taxpayers, and $55,000 for single or married-filing-separately taxpayers.

Revision to State Historic Property Tax Credits: Part E of the Budget allows taxpayers to transfer state historic property tax credits to other taxpayers upon approval from the Office of Parks, Recreation, and Historic Preservation. Part E also removes geographic limitations for the location of affordable housing projects supported by the state historic property credit.

Prior to this amendment to § 210-B(26) of the Tax Law, the recipient of a state historic tax credit was required to be the same taxpayer as the recipient of the equivalent federal credit. Additionally, the prior law limited eligibility for the tax credit to census tracts at or below the state median family income level, unless the projects were located in a state park, state historic site, or other state-owned land under the jurisdiction of New York State Parks.

The Budget allows for the recipient of the credit to transfer the credit (in its entirety or in part) to another entity or person, provided that the transfer is approved. The new amendment removes affordable housing projects subject to at least a 30-year regulatory agreement from the census tract limitations.  

Deduction Limitations for Certain Institutional Real Estate Investors: Part F, Subpart B prohibits certain institutional investors from claiming depreciation and interest deductions related to investments in residential real estate. The amendments to §§ 208(9) and 612 of the Tax Law apply to investors (or individual owners thereof) that own 10 or more single- and/or two-family homes and have $50 million or more in assets under management. The deduction prohibition applies to certain expenses related to such homes. However, institutional investors are still allowed to take interest deductions with respect to a home that is sold to an affordable housing nonprofit or individual buyer who will personally live in the home.

This amendment is intended to allow individual homebuyers more access to housing opportunities that otherwise might be snatched up by institutional investors.

Extend and Amend Excelsior Jobs Program for Semiconductor Industry: Part H  amends §§ 352, 353, 355, 359, 421, 422, 424, 425, and 426 of the Economic Development Law as well as §§ 210-B and 606 of the Tax Law to provide enhanced tax incentives for certain semiconductor businesses, including tax credits for semiconductor research and development and workforce training. In addition, Part H extends the existing Excelsior Jobs Program by 20 years, from 2029 to 2049, and expands it to semiconductor supply chain businesses. The Jobs Retention Tax Credit Program is also expanded under the Budget to support small businesses at risk of leaving New York or closing due to the economic impact of an event leading to an emergency declaration by the Governor.

Amendments to the Film Tax Credit: Part I enhances the Empire State Film Production Tax Credit and the Empire State Post-Production Tax Credit program. One example of an amended enhancement is the creation of the Empire State Independent Film Production Credit, which would allow qualified independent productions to access tax credits through an expedited process.

Additionally, Part I removes restrictions on above-the-line cost caps in the existing film production program, provides a formal definition for “loan out companies,” and mandates a withholding requirement on all payments made to such companies.

Technical Changes to the Newspaper and Broadcast Media Jobs Program: Sections 492, 494, 495 of the Economic Development Law and § 49 of the Tax Law are amended by Part J of the Budget. This Part makes changes to procedural rules for awarding tax credits to print media and broadcast businesses. In particular, Part J clarifies the definition of “eligible business” by specifying that each print media publication serving a separate market is treated as a separate print media business.

Extension for the New York City Musical and Theatrical Production Credit: Part L of the Budget extends the New York City musical and theatrical production credit by two years through 2027. Additionally, Part L amends § 24-c(b) of the Tax Law to increase the maximum aggregate amount of credit available under the program to $400 million, but also extends the requirement for certain highly successful recipients of the credit to make contributions of an amount up to 50% of the credit to the New York State Council on the Arts up until December 31, 2029.

Clarification of Taxpayer Notification and Protest Rights: Part M clarifies that the protest to which taxpayers are entitled are the same whether the taxpayer is notified via electronic or mailed communications. Specifically, Part M amends Tax Law § 35 to provide that “if a taxpayer uses a department system to access taxpayer information, including, but not limited to, notices, documents and account balance information, that is not an electronic communication furnished in lieu of mailing in accordance with this section, such accessed information shall not give the taxpayer the right to a hearing in the division of tax appeals, unless the right to protest such information is expressly authorized by this chapter or another provision of law” (emphasis added). In other words, use of a Tax Department system to access taxpayer information does not confer protest rights before the Division of Tax Appeals (DTA), unless the accessed information is a type of notice for which a hearing is specifically authorized by the Tax Law. Notices related to past-due fixed and final liabilities also do not confer protest rights.

This amendment comes on the heels of an August 2024 Third Department case, which held that the Tax Department’s use of its Online Services System (OLS) to display information about outstanding balances due qualifies as a written notice that confers hearing rights before the DTA (Dumpling Cove, LLC v. Commissioner of Taxation and Finance, 230 A.D.3d 927 (3d Dept. 2024)). The court acknowledged that the term “website” was not contemplated in existing statutory language because websites did not exist when the statute was enacted. However, because the Department used its website to convey information to taxpayers, specifically directing the petitioner to view its “balance due,” the use of its website made it a “notice” conferring certain rights.

An expansive reading of the Dumpling Cove decision could have allowed taxpayers to renew the period to challenge a Tax Department determination by simply viewing their outstanding tax due balance using the Department’s OLS system, contrary to the protest periods set forth in the statute. Thus, Part M clarifies which notices are and are not “statutory notices” that confer protest rights, while maintaining the purpose and function of the OLS system.

Digitization of the Tax Warrant Process: Part N amends Tax Law § 6 and requires the Tax Department to electronically file all tax warrants and warrant-related records at the Department of State (DOS) to effect liens and judgments against the real, personal, and other property of debtors, as well as requires the Tax Department to file a copy of any warrant or warrant-related record with the clerk of the county named in the warrant or record.

Prior to this amendment, the Tax Department was required to file a paper tax warrant at DOS and in the office of the clerk of each county where the tax debtor owns real property. Since the warrants established the State’s lien priority, delays in filing of warrants meant other creditors could cut in line ahead of the State. Digitization may also help taxpayers who have paid their tax debts but whose records have not been updated.

Part N streamlines the process for recording tax warrants and warrant-related records. It does so by providing that the Tax Department’s filing of warrants and warrant-related records at DOS establishes the State’s liens against the tax debtor’s real, personal, or other property located in New York as of the date of the electronic filing. Essentially, The Tax Department is required to file paper copies of all warrants and warrant-related records with the appropriate county clerk, as it currently is required to do, but any delay in processing would no longer prejudice New York. This amendment also requires that the Tax Department make available to the public information regarding warrants and that such information be searchable, which the Department already does via its online Warrant Search webpage. Finally, DOS is required to certify that a warrant or warrant-related record has been filed upon request of the Tax Commissioner.

Amendments to the STAR Income Definition: Part O simplifies the rules governing eligibility for and operation of the STAR (school tax relief) exemption and STAR credit programs. The specifics of these changes are as follows:

• Real Property Tax Law § 425(4)(a) is amended so that only one of the resident owners of a property must be 65 years of age or older.
• Real Property Tax Law § 425(4)(b)(i) is amended so that only the income of the owners who primarily reside at the property is considered for purposes of the applicable income standard.
• Real Property Tax Law § 425(4)(b)(ii)(B) is added so that property owners who are not required to file income tax returns are allowed to stop filing income worksheets if they were found to be eligible based on such worksheets for three consecutive years.
• Real Property Tax Law § 425(4-b) is added to consolidate the eligibility determination process. It outlines the Tax Commissioner’s authority to make STAR eligibility determinations, adds notice requirements if it is determined that a property is ineligible, and provides property owners an opportunity to respond to such notice.
• Tax Law § 606(eee)(1)(B)(i) is amended to set July 1 as the residency date for STAR credit income eligibility purposes in order to facilitate timely annual income eligibility determinations.

Increase the Article 9-A Estimated Tax Threshold: Part R amends Tax Law § 213-a to increase the threshold for mandatory first installment of estimated tax payments for corporate taxpayers from $1,000 of tax to $5,000.

Under previous law, corporation tax filers under Tax Law Article 9-A were required to make a mandatory first installment of estimated tax if their tax for a prior year exceeded $1,000, and to make further quarterly payments if they reasonably expected their tax for the current taxable year to exceed $1,000. This low threshold was especially burdensome for small businesses, but it is unclear how much the increase to $5,000 will lessen that burden. The $5,000 threshold applies to tax years beginning on or after January 1, 2026.

Establish a Tax Credit for Organ Donation: Part S of the Budget adds Tax Law § 606(ttt), which creates a one-time organ donation tax credit for certain taxpayers who, while living, donate one or more identified organs, including bone marrow, for human organ transplantation. 

Specifically, this amendment allows full-year resident taxpayers a refundable credit not to exceed $10,000 for three categories of unreimbursed expenses related to the transplant: travel expenses, lodging expenses, and lost wages. However, this credit is not available if the taxpayer was reimbursed for certain living donor expenses pursuant to Public Health Law § 4371, which may include expenses like lost wages or the economic value of sick or vacation days expended, travel and lodging, child care and elder care expenses, and costs of medications and care associated with the living donation surgery that are not covered by a donor’s health insurance.

The refundable credit is available for years beginning on or after January 1, 2025. For prior years, New York law provided a similar benefit for organ donation in the form of a subtraction modification from income.

Expand the Credit for Employment of Persons with Disabilities: Part U amends Tax Law § 210-B to increase the available tax credit for employers who employ persons with disabilities. Under the previous law, the maximum credit per qualified employee was limited to $2,100, but this amount has now been increased to $5,000 in qualifying wages.

Reporting on Federal Partnership Adjustments: Part V of the Budget Bill significantly changes many of the proposed partnership audit and assessment amendments we reported on in January. For example, Tax Law § 659-a has been largely rewritten to more closely align with the Multistate Tax Commission model legislation regarding the treatment of federal partnership-level audit changes and address many of the comments made on the original budget proposal. Some key changes include: a provision that partner-level reporting and payment is now the default (§ 659-a(d)(2)); the opportunity to negotiate an alternative reporting or payment arrangement (§ 659-a(d)(5)); the grant of discretion to the Tax Commissioner to promulgate regulations relieving taxpayers from the new requirements on partnership audits based on the establishment of a de minimis threshold for compliance (§ 659-a(e)); and provisions related to refunds ((§ 659-a(d)(5), (6); (659-a(g)). Also of note, a flow-through entity that is a partner in a tiered partnership structure can elect to pay tax on behalf of its partners (§ 659-a(d)(6)(B)).

We will provide an in-depth overview of the new reporting requirements in a later article, so stay tuned!

Elimination of NYC PIT for Certain Filers: Part W amends Tax Law § 1310 to establish a credit against personal income tax for certain New York City residents. To qualify, a taxpayer must (a) claim at least one dependent on their federal return, (b) have an income below the relevant threshold level, (c) not receive a New York State or City PTET credit, (d) not have certain types of disqualified income greater than $10,000, and (e) not file as “married filing separately” on federal tax returns. If the taxpayer would otherwise qualify but has an income that exceeds the threshold level, the taxpayer would still be eligible for a portion of the credit according to a formula provided. This provision of the Budget is intended to address the affordability issues for New York City residents.

Extension of the Clean Heating Fuel Credit: Part Y amends Tax Law § 210-B(25)(a) and Tax Law § 606(mm) to provide a three-year extension of the tax credit for purchases of bioheating fuel for use in residential space heating and hot water production. The amendment extends the credit, which was originally set to expire in 2026, to purchases made before January 1, 2029. The credit is available to Article 9-A franchise taxpayers as well as personal income taxpayers.

Extension of the Alternative Fuels and Electric Vehicle Recharging Property Credit: Part Z amends Tax Law §§ 187-b(6), 210-B(30)(f), and 606(p) to provide a three-year extension of the tax credits for purchases of alternative fuel vehicle refueling property and electric vehicle recharging property. The amendment extends the credits, which were originally set to expire at the end of 2025, through the end of 2028. The credits are available to transportation and transmission companies, subject to franchise tax under Article 9, as well as Article 9-A taxpayers and individual taxpayers.

Extension of the Farm Workforce Retention Credit: Part JJ amends Tax Law § 42(e) to extend the Farm Workforce Retention Credit that is  provided against Article 9-A corporate franchise tax and Article 22 personal income tax for employers of farm workers. The amendment extends the credit, which was originally set to expire in 2026, through the end of 2028. It maintains the credit at a rate of $1,200 per eligible farm employee.

Changes to Relief from Sales Tax Liability for Certain Limited Partners and LLC Members: Part QQ amends Tax Law §§ 1133(a) and 171 with regard to sales tax relief available to certain limited partners and members of limited liability companies (LLCs), placing additional limitations and qualifications on the granting of such relief. 

The amendment to the relief provision accomplishes the following:

• Moves the relief provisions from Tax Law § 1133(a) (governing liability of “persons required to collect tax”), to Tax Law § 171, which sets forth the “Powers and duties of the commissioner”;
• Requires the commissioner to deny any application for relief if: (A) the partner/member in fact had a duty to act for the entity with respect to sales tax compliance; (B) the partner/member has been convicted of a crime relating to sales tax; (C) the partner/member has a past-due tax liability; (D) approval of relief would undermine compliance with other taxes; or (E) approval would be “adverse to the best interests of the state.” Prior to the amendment, Tax Law § 1133(a)(2)(i) provided that the commissioner “may” deny an application for relief under conditions, listing only conditions “(A)” and “(B)” above;
• Confirms that a denial of an application for relief is not reviewable by the Division of Tax Appeals, but may be appealed via an Article 78 proceeding;
• Provides that the amount owed by a partner or member who qualifies for relief is not reduced by any amounts paid by a partner/member that does not qualify for relief; and
• Provides that any amounts paid by a qualifying member in excess of their pro-rata share of the liability shall be deemed payments made by the partnership or LLC, and that the partner/member is not entitled to a refund of that amount.

Changes to the Real Property Tax “Circuit Breaker” Credit: Part RR of the Budget amends Tax Law § 606(e) to effect changes to the Real Property Tax “Circuit Breaker” Credit available to certain homeowners and renters with adjusted gross income of $18,000 or less. The amendment, effective as of January 1, 2025, changes eligibility requirements for the credit by requiring that, in addition to being a New York resident for the tax year and occupying the same residence for six months or more, the taxpayer must also have real property taxes or real property tax equivalents in excess of the following percentages of their federal adjusted gross income:

• 5% for federal AGI of $3,000 or less
• 4% for federal AGI of $3,001 to $5,000
• 5% for federal AGI of $5,001 to $7,000
• 5% for federal AGI of $7,001 to $9,000
• 5% for federal AGI of $9,001 to $11,000
• 6% for federal AGI of $11,001 to $14,000
• 5% for federal AGI of $14,001 to $18,000

The amendment also adjusts the maximum credits available to taxpayers, although maintaining the highest potential credit at $375. The maximum credits pursuant to the amendment are as follows:

Taxpayers 65 or older

• $375 for federal AGI of $3,000 or less
• $330 for federal AGI of $3,001 to $5,000
• $300 for federal AGI of $5,001 to $7,000
• $260 for federal AGI of $7,001 to $9,000
• $230 for federal AGI of $9,001 to $11,000
• $200 for federal AGI of $11,001 to $14,000
• $150 for federal AGI of $14,001 to $18,000

Other taxpayers

• $75 for federal AGI of $5,000 or less
• $70 for federal AGI of $5,001 to $9,000
• $60 for federal AGI of $9,001 to $14,000
• $50 for federal AGI of $14,001 to $18,000

The legislation also disregards other members of a household from the process of determining qualifying property taxes or tax equivalents, focusing on eligibility and the determination of the credits available to the taxpayer individually.

Authorization of New Bed/Hotel Occupancy Taxes in Auburn and Buffalo: Parts SS and TT amend the tax law to add Tax Law § 1202-z-5 and Tax Law § 1202-kk, which authorize the City of Auburn and the City of Buffalo, respectively, to impose a locally administered hotel occupancy tax of up to 5% for Auburn or 3% for Buffalo. Hotel occupancies in both cities are currently subject to county-level occupancy taxes but not city-level taxes. Both provisions provide exemptions from the tax for occupancies by the State of New York, the U.S. government, tax-exempt organizations, and for “permanent residents” residing for more than 90 days. Buffalo occupancy tax collections may be deposited in the city’s general operating fund but must be used according to an allocation of: 25% to support city-owned parking facilities, as well as public safety initiatives undertaken by the Buffalo police department or other organizations in downtown Buffalo; and 75% to fund capital improvements for city-owned cultural facilities, city public spaces downtown, and city-owned professional sports venues.  

Changes to the Residential Geothermal Energy Systems Credit: Part UU amends the personal income tax credit for the purchase and certain leases of residential geothermal energy systems under Tax Law § 606(g-4). The amendment allows the credit to be refundable for married filers whose adjusted gross incomes are $180,000 or less and for single filers with adjusted gross incomes of $90,000 or less. Prior to the amendment, credits in excess of a taxpayer’s tax for a tax year could only be carried forward for five years. The amendment also raises the maximum credit from $5,000 to $10,000 for geothermal systems placed into service on or after July 1, 2025.  

Rate Changes for Metropolitan Commuter Transportation Mobility Tax (MCTMT): Part VV amends Tax Law §§ 800 and 801, to enact rate changes to the Metropolitan Commuter Transportation Mobility Tax (MCTMT). The MCTMT is a payroll tax imposed on employers within the Metropolitan Commuter Transportation District (MCTD) and on self-employed individuals. The rate changes effectively raise the tax rate on some larger employers while lowering rates on smaller employers. The amendment also divides the MCTD into two zones: Zone 1 (including Bronx, Kings, New York, Queens, and Richmond Counties) and Zone 2 (including Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester Counties). The rate adjustments, effective as of July 1, 2025, are as follows:

Zone 1

• 055% for payroll of $312,501 to $375,000 (current rate is 0.11%)
• 115% for payroll of $375,001 to $437,500 (current rate is 0.23%)
• 60% for payroll of $437,501 to $2,500,000 (current rate is 0.60%)
• 895% for payroll over $2,500,000 (current rate is 0.60%)

Zone 2

• 055% for payroll of $312,501 to $375,000 (current rate is 0.11%)
• 115% for payroll of $375,001 to $437,500 (current rate is 0.23%)
• 34% for payroll of $437,501 to $2,500,000 (current rate is 0.34%)
• 635% for payroll over $2,500,000 (current rate is 0.34%)

The increase in rates for the largest employers is intended for use in funding the Metropolitan Transportation Authority’s five-year, $68.4 billion capital plan.

Local government employers are exempt from the MCTMT in both zones, except for local government employers with payroll expense in excess of $2,500,000 in any calendar year, which are subject to tax in Zone 1 at a rate of 0.60%. 

The amendment holds MCTMT tax rates for self-employed individuals at their current rates, but beginning in 2026, the minimum threshold for having to pay the tax is increased to net earnings over $150,000 (up from the current $50,000).

For more information, please contact Open Weaver Banks (646.218.7524), Chris Doyle (716.848.1458), Joshua Lawrence (716.848.1403), Andrew Wright (716.848.1254), Peter Calleri (646.218.7594), Zoe Peppas (716.848.1754), or any member of the Hodgson Russ State & Local Tax (SALT) Practice.

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