The Legislature has printed and will soon pass the tax or revenue bill which S.3009-C/A3009-C the Governor is expected to sign into law as part of the Final 2025-26 State Fiscal Year Budget. The final bill of almost 25 pages makes several significant changes to the tax law including: increasing and expanding the payroll mobility tax, enacting a one time “inflation rebate credit”, enhancing the State’s child care credit and substantially cutting taxes for middle class taxpayers in the state. We have attached a table which provides a road map section by section and below we have provided additional detail about the significant sections:
Payroll Mobility Tax:
The final revenue bill includes an increase to the payroll mobility tax after July 1, 2025. The tax is amended by zone which is detailed here:
Zone 1
For companies in the five boroughs of New York City (MCTD zone 1) with payrolls of $10 million or more, rates will increase from the current 0.6 percent to 0.895 percent, a 49 percent increase. In addition:
- Firms with payrolls between $312,500 and $375,000 in any calendar quarter will have rates decreased from the current 0.11 percent to 0.055 percent;
- Firms with payrolls between $375,000 and $437,500 in any calendar quarter will have rates decreased from 0.23 percent to 0.115 percent;
- Firms with payrolls between $437,500 and $2.5 million in any calendar quarter will be taxed at 0.6 percent, consistent with the current rate; and
- Local government employers in this zone with payrolls exceeding $2.5 million in any calendar quarter will also be taxed at 0.6 percent.
Additionally, the language creates a threshold for employers in MCTD zone one – for tax quarters before July 1, 2025, those whose payroll is between $312,500 and $375,000 will have a tax rate of 0.11 percent. Currently, all businesses within MCTD zone one with payrolls no greater than $375,000 in any calendar quarter have a tax rate of 0.11 percent.
For self-employed individuals in zone 1, the tax threshold will be increased after January 1, 2026 – if net earnings attributable to zone 1 exceed $150,000 for the tax year, the tax will be imposed at a rate of 0.60 percent (currently, net earnings must exceed $50,000).
Zone 2
Companies in MCTD zone 2 (comprising Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester counties) with payrolls exceeding $2.5 million in any calendar quarter will also see their rates increase significantly from 0.34 percent to 0.635 percent.
The tax will also be expanded to include local government employers whose covered employees are within MCTD zone two. For self-employed individuals in zone 2, the tax threshold will be increased after January 1, 2026 – if net earnings attributable to zone 1 exceed $150,000 for the tax year, the tax will be imposed at a rate of 0.34 percent (currently, net earnings must exceed $50,000).
The language also creates a threshold for employers in MCTD zone two – for tax quarters prior to July 1, 2025, those whose payroll is between $312,500 and $375,000 in any calendar quarter will have a tax rate of 0.11 percent. Currently, all businesses within MCTD zone two with payrolls no greater than $375,000 in any calendar quarter have a tax rate of 0.11 percent.
For tax quarters after July 1, 2025, lower rates will begin for employers in MCTD zone two except for employers with payrolls exceeding $2.5 million (as mentioned above). Employers that are not local government employers will be taxed at a rate of 0.055 percent with payrolls between $312,500 and $375,000. Further, employers with payrolls between $375,000 and $437,500 will be taxed at a rate of 0.115 percent, employers with payrolls between $437,500 and $2.5 million will be taxed at a rate of 0.34 percent, and employers with payrolls that exceed $2.5 million will be taxed at 0.635 percent.
Child Care Tax Credit
The FY 2026 State Budget agreement includes Governor Hochul’s plan to give 1.6 million New York families an annual tax credit of up to $1,000 per child under age four and up to $500 per child from four through sixteen. Increase the Empire State Child Credits allowed for tax years 2025, 2026, and 2027. Specifically, a taxpayer would be allowed a refundable credit of $1,000 for each qualifying child under the age of four in tax years 2025, 2026 and 2027. Additionally, a taxpayer would be allowed a refundable credit of $330 for each qualifying child who is four years of age and not yet age seventeen in 2025, and $500 for each such qualifying child in 2026 and 2027. This bill would also expand eligibility to additional taxpayers in tax years 2025, 2026, and 2027.
Middle Class Tax Cut
The FY 2026 State Budget agreement includes tax reduction for more than 75 percent of all tax filers in New York providing $1 billion annually in tax relief to 8.3 million New Yorkers. This will provide savings to taxpayers earning up to $323,000 for joint filers. The bill would reduce the tax rates paid by married couples with incomes up to $323,200 who file jointly, for heads of households with incomes up to $269,300, and for single taxpayers and married taxpayers who file separately with incomes up to $215,400. The tax rates would be reduced in two phases: an initial rate cut applicable for tax year 2025 and a second rate cut beginning in tax year 2026.
Inflation Refund Credit
Joint tax filers with income up to $150,000 will receive a $400 check, and joint filers with income over $150,000 but no greater than $300,000 will receive a $300 check. Single tax filers with income up to $75,000 will receive a $200 check, and single filers with incomes over $75,000 but no greater than $150,000 will receive a $150 check. The new law allows for a credit against taxes beginning in 2023The credit is effective for tax years beginning 2023.