New York Enacts $254 Billion Budget With Key Tax Extensions and Changes for Businesses

ALBANY, N.Y. — Governor Kathy Hochul signed into law New York’s massive $254 billion budget for the 2026 fiscal year on May 9, 2025, finalizing a spending plan that introduces significant tax law changes for businesses and individuals across the state. The legislation, passed after missing its April 1 deadline, extends temporary higher tax rates for high-income earners and corporations but notably omits a proposed extension for the state’s critical pass-through entity tax election. The enacted budget, the largest in the state’s history, allocates substantial funds toward climate initiatives, childcare, and infrastructure. For business owners and high-income taxpayers, however, the most immediate consequences are found in the revenue-related provisions. The final bill confirms the continuation of higher tax brackets established in previous years and maintains a strict, early deadline for a popular workaround to the federal State and Local Tax (SALT) deduction cap, creating a complex compliance landscape for the upcoming tax season. From our perspective, the most telling detail in the new budget is not what was added, but what was left out: the extension of the Pass-Through Entity Tax (PTET) election deadline. Governor Hochul’s proposal to move the deadline from March 15 to a more manageable September 15 was rejected. This leaves business owners with an incredibly narrow and unforgiving window at the very start of the year to make an irrevocable decision that has major implications for their federal tax liability. For partnerships and S-corporations, this single decision can save owners thousands on their personal returns, but it requires careful forecasting. The March 15 deadline forces a complex analysis before the prior year’s books are even fully closed. This is a classic example of how state-level legislative details can create significant operational hurdles for small and mid-sized companies. While headlines may focus on broad spending, the real work for businesses lies in navigating these nuanced compliance requirements. We consistently see how these seemingly minor administrative rules can create major headaches and financial risks if not handled proactively. Proper planning is not just advisable; it's essential. For business owners feeling the pressure of this rigid timeline, the team at C&S Finance Group LLC provides expert tax preparation and compliance services to ensure these critical elections are made correctly and on time. You can learn more at csfinancegroup.com. The failure to extend the PTET election deadline means that partnerships and S-corporations must continue to decide whether to opt into the state-level tax by March 15 for the tax year. This election allows the entity to pay New York income tax on behalf of its owners, who then receive a corresponding credit on their personal state returns. The structure serves as a workaround to the $10,000 federal cap on SALT deductions for individuals, effectively allowing business owners to deduct state taxes related to their business income without limitation at the federal level. The decision to make the election is irrevocable for the year, heightening the stakes of the early deadline. For corporate taxpayers, the budget also extends several temporary tax increases. The business income tax rate will remain at 7.25% for affected corporations. Additionally, the capital base tax, which was scheduled to be phased out, will continue at a rate of 0.1875% for tax years through 2026. These extensions mean that businesses that had been planning for a reduction in their state tax burden will need to adjust their financial forecasts and tax planning strategies for the coming years. The budget also affirms New York's decision to decouple from certain federal tax provisions. According to legislative proposals that shaped the final bill, the state will not conform to federal rules allowing for 100% bonus depreciation for certain nonresidential real property. This means businesses in New York must calculate depreciation differently for state and federal purposes, adding a layer of complexity to asset management and tax filing. On the personal income tax side, the budget extends the temporary higher tax rates for New York’s top earners. The rates, which were first increased in 2021, will remain in effect. These brackets start at 9.65% for single filers with income over approximately $1.1 million and joint filers over $2.2 million. The rate increases to 10.3% for income over $5 million and tops out at 10.9% for income exceeding $25 million. For business owners who are taxed as individuals, such as sole proprietors and partners, this extension has a direct impact on their personal tax liability. However, the budget does provide some relief for other residents. It enhances the Empire State Child Credit for the 2025, 2026, and 2027 tax years. The bill provides a refundable credit of $1,000 for each qualifying child under the age of four. For children between four and seventeen, the credit will be $330 in 2025 and increase to $500 for 2026 and 2027. The legislation also includes an inflation refund credit intended to provide relief to millions of middle-class New Yorkers. Legislators have acknowledged that the state’s financial plan relies on federal funding that may be subject to future cuts. Should federal aid be reduced later in the year, lawmakers may be forced to reconvene and make adjustments to the newly passed budget. For now, New York businesses and residents must adapt their financial plans to the tax landscape defined by this latest legislation.