New York Enacts Income Tax Reductions, New Tax Credits, Makes Other Changes

By Jill C. McNally

On May 9, 2025, New York Governor Kathy Hochul signed A3009, implementing the state’s fiscal plan for the 2025-2026 state fiscal year. The law includes payroll and personal income tax rate changes and extends a number of current tax credit programs. The law also adds new tax credits including those for the film industry and the semi-conductor manufacturing industry. (L. 2025, A3009 (c. 59), effective 05/09/2025, or as otherwise stated.)

Estimated taxes.

For taxable years beginning on or after January 1, 2026, the threshold for filing estimated taxes increases to $5,000 (currently $1,000).

MCTD payroll tax.

The law divides the Metropolitan Commuter Transportation District (MCTD) into two zones:

• Zone one counties: Bronx, Kings (Brooklyn), New York (Manhattan), Queens, and Richmond (Staten Island).
• Zone two counties: Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester.

Rate changes: Effective July 1, 2025, the calendar quarter payroll tax rate changes for zone one employers are as follows:

• 0.055% for payroll greater than $312,500 and no greater than $375,000;
• 0.115% for payroll greater than $375,000 and no greater than $437,500;
• 0.60% for payroll greater than $437,500 and no greater than $2.5 million; and
• 0.895% for payroll greater than $2.5 million (0.60% local government employers).

Zone two employer payroll tax rates are as follows:

• 0.055% for payroll greater than $312,500 and no greater than $375,000;
• 0.115% for payroll greater than $375,000 and no greater than $437,500;
• 0.34% for payroll greater than $437,500 and no greater than $2.5 million; and
• 0.635% for payroll greater than $2.5 million (0% for local government employers).

Individual rates for zones one and two remain unchanged. However, effective January 1, 2026, the threshold for paying the tax increases to over $150,000 in earnings for the tax year (previously $50,000).

Personal income tax.

Rate changes: For tax years beginning after 2025 and before 2027, the law provides for a reduction in most personal income taxes, but adds higher income tax brackets. For married filing joint taxpayers, if the taxable income is:

• not over $17,150, the tax is 3.9%;
• over $17,150 but not over $23,600, the tax is $669 plus 4.4% of excess over $17,150;
• over $23,600 but not over $27,900, the tax is $953 plus 5.15% of excess over $23,600;
• over $27,900 but not over $161,550, the tax is $1,174 plus 5.4% of excess over $27,900;
• over $161,550 but not over $323,200, the tax is $8,391 plus 5.9% of excess over $161,550;
• over $323,200 but not over $2,155,350, the tax is $17,928 plus 6.85% of excess over $323,200;
• over $2,155,350 but not over $5 million, the tax is $143,430 plus 9.65% of excess over $2,155,350;
• over $5 million but not over $25 million, the tax is $417,939 plus 10.3% of excess over $5 million; or
• over $25 million, the tax is $2,477,939 plus 10.90% of excess over $25 million.

For tax years beginning after 2032:

• not over $8,500, the tax is 3.80%;
• over $8,500 but not over $11,700, the tax is $323 plus 4.3% of excess over $8,500;
• over $11,700 but not over $13,900, the tax is $461 plus 5.05% of excess over $11,700;
• over $13,900 but not over $80,650, the tax is $572 plus 5.3% of excess over $13,900;
• over $80,650 but not over $215,400, the tax is $4,110 plus 5.8% of excess over $80,650;
• over $215,400 but not over $1,077,550, the tax is $11,926 plus 6.85% of excess over $215,400; or
• over $1,077,550, the tax is $70,983 plus 8.82% of excess over $1,077,550.

The law also makes adjustments to the supplemental alternative tax table benefit recapture amounts.

Partnership adjustments: Partnerships must report federal tax adjustments (regardless of the tax impact) to New York State within 90 days after each final federal determination date, or the filing of an administrative adjustment request. Any additional New York tax due after any adjustments is paid by the affected partnership. Adjustments occurring before May 9, 2025, must be reported within one year of that date (no interest will be imposed). The law also amends the administrative code of New York City regarding federal adjustments.

Empire State child tax credit: For taxable years beginning on or after January 1, 2025, and before January 1, 2026, the Empire State child tax credit increases to $1,000 for each child up to three years old and $330 for each child between four years old and not yet 17 years old. For tax years beginning on or after January 1, 2026, and before January 1, 2028, the credit is $1,000 for each child up to three years old and $500 for each child between four years old and not yet 17 years old.

Inflation refund credit: For the 2025 tax year, a tax credit of between $150 and $400 is available for taxpayers subject to certain income requirements and based on filing status.

Low-income housing credit: Buildings financed by certain refunded bonds are eligible for the low-income housing tax credit pursuant to IRC § 42(b)(2). The law also increases the statewide limitation.

Geothermal energy credit: The credit cap is increased to $10,000 (previously $5,000) for qualified geothermal energy systems placed in service on or after July 1, 2025.

Organ donation: For tax years beginning on or after January 1, 2025, a tax credit is available (replacing the current deduction) for full-year resident taxpayers who donate one or more human organs (liver, pancreas, kidney, intestine, lung, or bone marrow) to another human for certain unreimbursed expenses, up to $10,000. The credit can only be claimed once and in the taxable year when the transplant occurs.

Semiconductor supply chain tax credit.

For tax years beginning on or after January 1, 2025, the law adds a semi-conductor supply project as an eligible participating industry in the excelsior jobs program. A semiconductor supply chain project is “a project deemed by the commissioner to make products or develop technologies that are primarily aimed at supporting the growth of the semiconductor manufacturing and related equipment and material supplier sector.” The supply chain project includes “semiconductor device manufacturing, producers of component parts, direct input materials and equipment necessary for the manufacture of semiconductor chips, machinery, equipment, and materials necessary for the operational efficiency of semiconductor manufacturing facilities, other such inputs directly supportive of the domestic production of semiconductor chips, and companies engaged in the assembly, testing, packaging and advanced packaging semiconductor value chain.”

Credit amount: The credit for eligible semiconductor projects is: (1) up to 7% of gross wages; (2) up to 3% of the cost or basis of qualifying investments; and (3) up to 7% of qualifying research and development expenses for activities in New York.

Semiconductor research and development.

For taxable years beginning on or after January 1, 2025, a participant in the semiconductor research and development project program may claim a tax credit of up to 15% of the cost or other basis of a qualified investment for a period up to 10 consecutive tax years. A “qualified investment” is an investment in tangible property (including a building or a structural component of a building) that:

• is depreciable under IRC §167;
• has a useful life of four years or more;
• is acquired by “purchase” as defined in IRC §179(d);
• has a situs in New York; and
• is placed in service in New York on or after the date the certificate of eligibility is issued.

The credit cannot reduce tax liability to less than the minimum tax, and any excess credit will be treated as an overpayment to be credited or refunded. The credit is also subject to recapture.

Manufacturing training tax credit.

The law adds a manufacturing training tax credit for an eligible business entity who must: (1) operate in the state as a semiconductor manufacturing business or a manufacturing business; (2) demonstrate it is conducting eligible training or obtaining eligible training from an approved provider; (3) be in compliance with all worker protection and environmental laws and regulations; (4) not owe past due state taxes or local property taxes.

A “manufacturing business” is “a business that is engaged in the process of working raw materials into products suitable for use or which gives new shapes, new quality or new combinations to matter which has already gone through some artificial process by the use of machinery, tools, appliances, or other similar equipment.” The definition excludes only the assembly of components, but includes “high value-added” product assemblies such as motor vehicles.

A “semiconductor manufacturing business” is “a business deemed by the commissioner to make products or develop technologies that are primarily aimed at supporting the growth of the semiconductor manufacturing and related equipment and material supplier sector.” However, the “semiconductor and supply chain” excludes “a project primarily composed of: (a) machinery, equipment, or materials that are inputs to manufacturing generally, but are not direct inputs to semiconductor manufacturing in specific; or (b) the production of products or development of technologies that would produce only marginal and incremental benefits to the semiconductor manufacturing sector.”

Credit amount: The credit amount is 75% of wages, salaries or other compensation, training costs, and wrap around services, up to $25,000 per employee receiving eligible training. The credit is capped at $1 million per eligible non-semiconductor manufacturing business and up to $5 million per eligible semiconductor manufacturing business. Any amount over the fixed dollar minimum is treated as an overpayment credited or refunded (without interest). The credit is subject to recapture.

Empire state jobs retention program.

The law amends the Empire state jobs retention program adding a broad definition of a business entity (removing industry specific businesses) and revises participation in the program to a business entity (on or after June 1, 2025) that demonstrates physical damage and economic harm at location(s) where the governor has made an emergency declaration.

Credit amount: The jobs retention credit is the product of gross wages for impacted jobs and for a business entity that employs:

• three to 49 employees, up to 15% (previously 6.85%);
• 50 to 100 employees, up to 7.5%; or
• more than 100 employees, up to 3.75%.

The credit cap is $500,000 per event for each affected business.

Persons with disabilities.

For taxable years beginning on or after January 1, 2025, the credit for employment of persons with disabilities is expanded to the first $5,000 of first-year wages (previously $6,000).

Film credits.

Independent film production credit: A new Empire State independent film production credit is enacted for eligible independent film production companies. The amount of the credit (or pro rata share) is 30% of qualified production costs provided those costs (excluding post production costs) are at least 75% of the production costs. However, if the qualified production costs are less than $3 million, the qualified production costs incurred outside of a qualified film production facility are permitted only if shooting days within New York are at least 75% of total shooting days. Taxpayers claiming this credit are not eligible for the credit for the production for two or more qualified films.

Additional credits are available to eligible independent film production companies where the property is used and the services are performed in any of the following counties: Albany, Allegany, Broome, Cattaraugus, Cayuga, Chautauqua, Chemung, Chenango, Clinton, Columbia, Cortland, Delaware, Dutchess, Erie, Essex, Franklin, Fulton, Genesee, Greene, Hamilton, Herkimer, Jefferson, Lewis, Livingston, Madison, Monroe, Montgomery, Niagara, Oneida, Onondaga, Ontario, Orange, Orleans, Oswego, Otsego, Putnam, Rensselaer, Saratoga, Schenectady, Schoharie, Schuyler, Seneca, St. Lawrence, Steuben, Sullivan, Tioga, Tompkins, Ulster, Warren, Washington, Wayne, Wyoming, and Yates. The additional credits are 10% of wages, salaries, or other compensation (cannot exceed 40% of aggregate sum of all qualified productions costs) and 10% of qualified production costs in connection with a qualified independent film with a minimum budget of $500,000. An additional 10% is available for scoring costs within the state paid to a minimum of five musicians.

Production plus program: A qualified or independent film production company, or a majority owner of one or more of those production companies that submit at least two initial applications to the Empire State film production tax credit program after January 1, 2025, may be eligible for an additional credit of 10% of qualified production costs. From those applications, the sum of qualifying production costs must be at least $100 million. A qualified independent film production company producing a feature length film, television film or series, may receive as additional credit of 5% of qualified production costs if initial applications total at least $20 million.

However, initial applications for feature length films and new television series submitted after December 31, 2028, are not eligible for the program. However, a television series that enters the program before January 1, 2029, will continue to be eligible.

Empire State postproduction credit: Eligibility for the qualified post production costs (except for visual effects and animation) credit is amended so that the costs must now meet or exceed $1 million or 75% total production costs, whichever is less. For visual effects and animation post production costs, the thresholds have been reduced from meeting or exceeding $3 million to $500,000 and reduced from 20% to 10% of total production costs, whichever is less.

Other changes: The law modifies the film production credit for qualified film applications to the extent that the taxable year the credit is claimed must include the last day of the allocation year the Department of Economic Development allocated the film credit. The change applies to those applications received on or after January 1, 2025.

The law further removes the $500,000 cap on wages, salaries, or other compensation for writers, director, composers and performers from production costs. The law also extends the film production and post production credit to 2036 (from 2034) and adds a credit recapture provision.

Farm employer overtime credit.

For taxable years beginning on or after January 1, 2026, the law revises the current farmer employer overtime credit by creating a new farm employer overtime credit program that is now administered by the Department of Agriculture and Markets. The program issues eligible farm employers an overtime expense certificate to claim the credit, which remains unchanged at 118% of qualified overtime expenses. The law also extends the credit to taxable years before January 1, 2029.

Newspaper and broadcast media.

For taxable years on or after January 1, 2025, the definition of “independently owned” is amended by removing a subsidiary and other criteria in determining when a business is not controlled by another business entity. The law also amends the definition of “eligible business” in that each print media publication serving a separate market is treated as a separate media business.

Digital gaming credit.

The law expands eligibility for the digital gaming credit by reducing the digital media production costs to $50,000 or more (previously $100,000) to qualify. The law also increases the amount of qualifying digital gaming media production costs up to $5 million (previously $4 million) per production, and reduces productions costs to qualify for the credit from 75% to 51% of total cost of a production. For tax years beginning on or after January 1, 2023, certain unused allocated amounts of the Empire State digital gaming media production credit can be added to the following tax year(s) aggregate amount.

Rehabilitation of historic properties.

For tax years beginning on or after January 1, 2026, eligibility restrictions for rehabilitation of historic properties tax credit does not apply to certain affordable housing projects. Further, an eligible taxpayer is permitted to transfer the rehabilitation of historic properties tax credit (in whole or part) to another taxpayer or entity.

Credit extensions.

The following tax credits are extended for three years:

• clean heating fuel tax credit for fuel purchased before January 1, 2029;
• alternative fuels and electric vehicle recharging property credit to December 31, 2028;
• workers with disabilities tax credit to tax years beginning before January 1, 2029;
• hire a vet tax credit to tax years beginning before January 1, 2029; and
• farm workforce retention credit to tax years beginning before January 1, 2029.

The New York City musical and theatrical production credit is extended for two years to January 1, 2028. The aggregate amount of credits available increases from $300 million to $400 million and the application deadline is extended to June 30, 2027. The New York musical and theatrical production credit is also extended to January 1, 2030.

Employee incentive training program.

The law repeals the employee incentive training program, effective December 31, 2028.

Excelsior jobs program.

The credits under the Excelsior jobs program are extended through 2034 (and capped at $200 million), with no tax credits allowed after January 1, 2050.

Sales tax.

Vending machines: The law extends the sales tax exemption for vending machine transactions to May 31, 2026.

Liability relief: Subject to certain restrictions, limited partners of a limited partnership (not including partners in limited liability partnerships) or limited liability company (LLC) members may apply for relief from sales tax liability provisions if the limited partner or member’s ownership interest and share of profit and losses are each less than 50% and are not under a duty to act (and do not act) on behalf of the partnership or LLC.

Occupancy taxes: The city of Auburn in Cayuga County is authorized to impose an occupancy tax not to exceed 5% of the per diem rental rate for each room. The city of Buffalo in Erie County is also authorized to impose an occupancy tax not to exceed 3%. Both authorizations expire December 31, 2027.

Property tax.  

STAR exemption: Property owners who received the STAR exemption for three consecutive years but did not file income tax returns during that period but satisfied income eligibility through income-eligibility statements will be presumed to meet those requirements without having to file those statements unless requested. The law adds new provisions for determining eligibility on income and property. Eligibility is based on at least one of the owners (previously all owners) who resides primarily on the property to be 65 or older. The law makes others administrative changes.

Covered properties: For tax years beginning on or after January 1, 2025, depreciation and interest deductions are disallowed on covered properties owned by institutional real estate investors and federal deductions taken must be added back in computing entire net income. Any interest deduction permitted under IRC §163 treated as chargeable to a capital account is treated as an IRC §163 deduction. Interest paid or accrued in the tax year the property is sold to an individual for use as a principal residence and a nonprofit organization organized principally to provide affordable housing is excluded from the disallowance.

Estate tax.

The estate tax 3-year gift addback rule is extended from January 1, 2026, until January 1, 2032.

Parimutuel taxes.  

Pari-mutuel wagering tax: Effective September 1, 2025, a 0.7% excise tax is imposed on authorized racing associations or corporations, and regional off-track betting corporations, based on the monies wagered. The law repeals the 25% credit to off-track betting corporations and the non-refundable tax credit under Racing, Pari-Mutuel Wagering and Breeding Law §1011 and §908 respectively. Various simulcast provisions are extended. The pari-mutuel tax reductions are extended to July 1, 2026, and the tax on pari-mutuel betting is extended to December 31, 2026.

Multi-jurisdictional wager fees: The law increases the market origin fee imposed on multi-jurisdictional account wagering providers to 5.45% on each wager from New York residents (previously 5%) and enacts an additional 1% fee on wagers from New York residents.

Gaming revenue tax: From April 1, 2026, through June 30, 2031, the gaming revenue tax from slot machines will not increase for the preceding fiscal year for gaming facilities in zone 2 (all counties in the state except the city of New York and the counties of Nassau, Putnam, Rockland, Suffolk and Westchester), as long as certain requirements are met. The law also changes the expiration of the gaming revenue tax from April 19, 2026, to April 1, 2026.

General.

Appeals: When a taxpayer accesses information through the Department of Taxation and Finance’s system, accessing that system to receive information does not give the right to a hearing in the Division of Tax Appeals, nor does a written notice advising of a past-due tax liability. The law also adds electronic notices by the Division of Taxation to notices that are the basis for a protest to the Division of Tax Appeals.

Tax warrants: Effective July 1, 2025, the law requires tax warrants and warrant-related records be filed with the Department of State electronically. On the date a warrant is electronically filed, the amount on the warrant is a lien on real, personal, or other property.