New York enacted the FY 2027 budget on May 28, 2026, following legislative passage on May 27. While the enacted package spans education, healthcare, housing, aid to localities, transportation, economic development, and capital investment, this article focuses on selected tax and business provisions most likely to affect New York taxpayers, employers, health plans, farmers, and businesses with New York filing obligations.
The budget does not broadly increase personal income tax or business tax rates. It does, however, make targeted changes, some taxpayer-friendly, some revenue-raising, and some primarily administrative, that require attention for compliance, planning, and financial reporting.
Individual Tax Relief & Credits
Qualifying Tip Income Subtraction
For table years beginning on or after January 1, 2026, New York provides a subtraction for up to $25,000 of qualifying tip income, generally tied to the federal deduction for qualified tips. Because eligibility depends on the federal rules, taxpayers should first confirm whether the tips qualify federally before claiming the New York subtraction.
Employers in hospitality and service industries should review payroll, tip-reporting, and year-end reporting procedures to ensure tip income is properly documented. Employees should not assume all tip income automatically qualifies; the subtraction applies only to tips that meet the applicable qualifying rules.
POWER Utility Rebate Credit
The budget creates the one-time Protecting Our Wallets Energy Rebate, or POWER, credit, funded at approximately $1 billion. Eligibility is based on 2024 New York resident return information, filing status, and New York adjusted gross income. Credit amounts are:
- $200 for married filing jointly or qualifying surviving spouse filers with 2024 NYAGI at or below $150,000;
- $150 for married filing jointly or qualifying surviving spouse filers with 2024 NYAGI above $150,000 and up to $300,000; and
- $100 for single, married filing separately, or head of household filers with 2024 NYAGI at or below $150,000.
Eligible taxpayers generally must have been full-year New York residents for 2024, timely filed a 2024 New York resident income tax return, met the applicable income threshold, and not been claimed as a dependent on another taxpayer’s return. Taxpayers who have not filed a 2024 New York resident return should review whether filing may preserve eligibility.
Child & Dependent Care Credit
The budget restructures the refundable New York State child and dependent care credit for tax years beginning on or after January 1, 2026. For this purpose, a “qualifying individual” generally means a dependent child under age 13 at the close of the tax year, or a dependent or spouse who is physically or mentally incapable of self-care and satisfies the applicable residency/dependency requirements. Special rules may apply where a non-custodial parent claims the child under IRC §152(e). The credit uses the following qualifying expense caps:
- $3,000 for one qualifying individual
- $6,000 for two qualifying individuals
- $7,500 for three qualifying individuals
- $8,500 for four qualifying individuals
- $9,000 for five or more qualifying individuals
The applicable percentage begins at 55% for taxpayers with NYAGI of $15,000 or less and phases down to a floor of 4% as NY adjusted gross income increases. For taxpayers with NYAGI above $750,000, the credit is further reduced by $20 for each $1,000 of NYAGI above that threshold. Families with moderate incomes may see a meaningful increase in credit value compared with the prior structure, while higher-income taxpayers should model the impact carefully.
Disabled Veteran Property Tax Relief
The budget expands property tax relief for certain permanently and totally disabled veterans through a local opt-in exemption program. Eligible veterans should confirm whether their municipality has adopted the exemption and review the local application requirements.
Business Tax Provisions and Federal Decoupling
Corporate Franchise Tax Rate Extension
The budget extends the 7.25% business income base rate for taxpayers with a business income base greater than $5 million and separately extends the 0.1875% business capital base rate for taxable years beginning before January 1, 2030. Businesses that had modeled a rate reduction during that period should update state tax provision calculations and estimated tax payment projections.
Decoupling from Recent Federal Depreciation & R&E Changes
New York decoupled from selected federal One Big Beautiful Bill Act (OBBBA) provisions affecting accelerated depreciation for qualified production property under IRC §168(n) and the federal treatment of foreign and domestic research and experimental (“R&E”) expenditures under IRC §§174 and 174A. New York’s decoupling rules apply to tax years beginning on or after January 1, 2025.
For qualified production property, taxpayers must add back the full amount of any federal accelerated depreciation deduction under IRC §168(n). New York allows a subtraction for depreciation calculated as if the special federal treatment had not applied.
For R&E expenditures, New York’s treatment should be applied in two steps. First, determine whether the taxpayer is in a tax year beginning on or after January 1, 2025. If not, these New York decoupling modifications do not apply for that tax year. Second, for tax years beginning on or after January 1, 2025, determine the New York treatment based on when the R&E expenditure was paid or incurred. Foreign and domestic R&E expenditures paid or incurred on or after January 1, 2025 must be amortized over 60 months for New York purposes. Foreign and domestic R&E expenditures paid or incurred before January 1, 2025 must continue to be amortized under the federal rules in effect on January 1, 2022.
These rules have immediate implications for state tax provision calculations, quarterly estimated tax payments, and 2025 New York return filing positions. If a 2025 New York return has already been filed without the required modifications, an amended return may be required. Penalty and interest relief may be available for taxpayers that timely file or amend a tax year 2025 return to report the required modifications.
Businesses with New York City filing obligations should also note that New York City adopted its own conformity adjustments, which differ in certain respects from the state rules. In addition to decoupling from selected federal OBBBA depreciation and R&E provisions, New York City has adopted separate rules affecting items such as the calculation of adjusted taxable income for interest limitation purposes and certain expensing provisions. As a result, taxpayers may need to maintain separate federal, New York State, and New York City calculations, increasing compliance and provision complexity.
Sales Tax Vendor Reregistration Program
The budget authorizes the New York State Department of Taxation and Finance to implement a statewide sales tax vendor reregistration program that is expected to be completed by December 31, 2030. Although additional administrative guidance is expected, businesses registered for New York sales tax should anticipate future requests to verify registration information and confirm filing profiles. Organizations should take the opportunity to review legal entity information, business locations, responsible party data, and sales tax registrations to ensure records are accurate and up to date before the program is implemented.
Farm-Related Tax Benefits
The budget includes several provisions directed at New York’s agricultural sector:
- The 20% refundable investment tax credit for eligible farmers is extended through tax year 2032.
- The farm donations credit (available for qualified donations of fresh produce and other eligible farm products to food pantries) increases from 25% to 50% of fair market value, with the maximum credit increasing from $5,000 to $20,000 for tax years beginning on or after January 1, 2026.
- The budget standardizes the definition of “eligible farmer” for several farm-related credits, which should simplify eligibility determinations.
- The budget also standardizes the eligible farmer definition across several credits, generally using New York gross income from farming and a two-thirds gross-income test.
Farmers and farm operators should review eligibility under the updated rules and ensure they are capturing available credits in 2026 and later returns.
Healthcare & Other Revenue Measures
Managed Care Organization Provider Tax
The budget authorizes an amended Managed Care Organization provider tax structure, subject to approval by the Centers for Medicare & Medicaid Services. If CMS approves the amended structure, the revised MCO provider tax would apply beginning January 1, 2027, at 0.35% of total premium revenue for each calendar year. Health plans operating in New York should monitor the CMS approval process and evaluate the potential impact on premium revenue calculations and financial reporting.
New York City Pied-à-Terre Surcharge
Beginning July 1, 2026, New York City will impose a new annual pied-à-terre surcharge on certain high-value residential properties that are not used as a taxpayer’s primary residence. During the initial period beginning July 1, 2026, the surcharge generally applies to non-primary Class 1 residences with market value of at least $5 million and certain condominium and cooperative units with market value of at least $1 million. Beginning July 1, 2028, the threshold generally becomes $5 million. The surcharge is currently scheduled to expire after June 30, 2031. Affected owners, including individuals, trusts, and entities holding New York City residential property, should evaluate whether the new rules apply and consider the potential impact on ownership structures, occupancy arrangements, and future real estate planning decisions.
Alternative Nicotine Products Tax
The budget brings alternative nicotine products into New York’s tobacco products excise tax regime, including inventory floor tax rules. Distributors and retailers carrying these products should confirm the effective date, complete any required inventory count, and prepare for a short remittance window once the tax takes effect.
Capital, Education, Housing, & Infrastructure Priorities
Beyond the tax provisions, the FY 2027 budget includes significant spending commitments across education, healthcare, housing, transportation, economic development, energy, environmental conservation, childcare, and public safety. Businesses and exempt organizations involved in construction, real estate development, energy, education, healthcare, and transportation should evaluate whether these commitments create grant, procurement, financing, or project opportunities.
Because many of these items will depend on agency-level implementation, organizations should monitor future guidance, program notices, and funding announcements before making business or financial projections.
What Businesses & Individuals Should Do Now
- POWER rebate: Confirm whether a 2024 New York resident return was timely filed, verify NYAGI eligibility, and review dependent status.
- Tip income: Employers should review payroll, tip-reporting, and year-end reporting procedures; employees should document tip income and confirm federal eligibility before claiming the New York subtraction.
- Child and dependent care credit: Model the restructured credit under the new expense caps and percentage schedule, especially for taxpayers with NYAGI above $750,000.
- Corporate franchise tax: Update tax provision calculations and estimated tax payments to reflect the extended 7.25% business income base rate and 0.1875% capital base rate through taxable years beginning before January 1, 2030.
- OBBBA decoupling: Review 2025 and 2026 filing positions for qualified production property depreciation and R&E expenditures. Taxpayers that already filed 2025 New York returns may need amended returns to report the required modifications, and penalty/interest relief may be available for timely filed or amended returns reporting those changes.
- Farm credits: Review eligibility under the updated farmer-credit rules, including the extended 20% refundable investment tax credit and enhanced farm donations credit.
- MCO provider tax: Monitor CMS approval and assess the potential impact of the amended 0.35% premium revenue assessment on 2027 projections.
- Alternative nicotine products: Distributors and retailers should identify affected inventory as of August 31, 2026, and prepare for the September 21, 2026, floor-tax remittance deadline.
- New York City taxpayers: Review whether NYC-specific provisions apply, including city decoupling rules and the new pied-à-terre surcharge for certain high-value non-primary residences.
The FY 2027 budget pairs targeted individual tax relief with selective federal decoupling, new revenue measures, and continued capital investment. The details matter: eligibility thresholds, effective dates, filing status, residency rules, and federal conformity provisions will determine how each item applies.
If you have questions about how these provisions may affect your compliance obligations, tax provision, or planning opportunities, The Bonadio Group can help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
