On January 21, 2025, New York Governor Hochul released her Fiscal Year 2026 Executive Budget and accompanying legislation (the Budget Bill). The Budget Bill includes a middle-class tax cut, a temporary personal income tax high income surcharge extension, and addresses a number of new and existing credits. It does not contain any new taxes or rate increases.
Recent and notable proposed legislation that did not make its way into the Budget Bill includes: (i) an increase in the amount of GILTI included in the New York State business income base (SB 953, see our Blog Post discussing SB 953); (ii) a tax on the collection of consumer data (AB 1434); and (iii) a digital advertising tax (SB 173).
Important proposals in the Budget Bill include:
- Providing a tax rate reduction for married couples jointly filing with incomes up to $323,200, heads of households with incomes up to $269,300, and single taxpayers and married taxpayers filing separately with incomes up to $215,400, applicable to tax years 2025 and 2026. The proposal also extends the temporary personal income tax high income surcharge (previously set to phase out for tax years beginning after 2027) to 2032.
- Establishing a reporting requirement for federal partnership audit adjustments and self-reported administrative adjustments made pursuant to the federal centralized partnership audit regime. The proposal is intended to “remove any uncertainty” over whether federal additions to tax, or any other federal adjustments under the federal partnership audit regime, must be reported by taxpayers. The proposal would add a new section to the Tax Law describing how such federal adjustments must be reported to the Department by the partnership or its partners.
- Moving the deadline for qualifying entities to elect to pay the New York Pass-Through Entity Tax and the New York City Pass-Through Entity Tax from March 15 to September 15.
- Clarifying that a webpage display on the Department of Taxation and Finance Online Services System of a taxpayer’s outstanding balance due does not constitute a notice which grants the taxpayer the right to a hearing before the Division of Tax Appeals, unless the right to protest such information is expressly authorized as electronic communication furnished in lieu of physical mailing in accordance with Tax Law § 35. Further, the proposal clarifies that written communication of the Division of Taxation (including electronic communication) which advises the taxpayer of a past-due tax liability1 does not give the taxpayer a right to a hearing. This proposal is responding to the recent decision in Dumpling Cove, LLC v. Commissioner of Taxation and Finance, 230 A.D.3d 927 [3d Dept. 2024], where the court found that information conveyed to a taxpayer via the Department’s website regarding the taxpayer’s balance due was a notice with protest rights.
- Increasing the threshold at which taxpayers are required to make estimated tax payments under Article 9-A (the franchise tax on business corporations) from $1,000 to $5,000, beginning January 1, 2026.
Noteworthy credit proposals in the Budget Bill include:
- An expansion of low-income housing credits;
- Establishment of the “CATALIST NY Program” to help to grow the innovation economy in New York State and support early-stage innovation businesses;
- An expansion of the Empire State Film Production and Empire State Post-Production Credits;
- An expansion of the Excelsior Jobs Program;
- An amendment to allow carryovers of unused empire state digital gaming media production credits;
- An expansion of the available tax credit for employers who employ persons with disabilities;
- An amendment to the Administrative Code of the City of New York to authorize credits for relocation and employment assistance; and
- An extension of the hire a vet tax credit provided to taxpayers for hiring qualified veterans for an additional three years.
Next Steps
The Governor is responsible for preparing a comprehensive budget proposal that the Legislature will modify before it is ultimately enacted into law. Over the next few weeks, the Governor will coordinate requests from agencies and submit a final budget to the Legislature, along with appropriation bills and other related legislation. The Legislature will then analyze the Governor’s budget, hold public hearings, and seek further information from agencies. Following that review, both houses of the Legislature must reach agreement on spending and revenue recommendations that may amend the Governor’s proposed appropriation bills and related legislation.
It is possible that some significant tax proposals may arise during this process. The State’s fiscal year begins April 1, so the timeline for the Legislature to review and approve the Executive Budget is fairly limited.
The Eversheds Sutherland SALT team is closely monitoring the Budget Bill and will keep you apprised of relevant updates.
1 “Past-due tax liabilities” is defined as “any tax liability or liabilities which have become fixed and final such that the taxpayer no longer has any right to administrative or judicial review.” NY CLS Tax § 171-v(1).
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