On May 10, 2025, New York Governor Hochul signed the 2025-2026 budget bill into law. While there are no major tax changes in the budget bill, several items are worthy of note for taxpayers. Including a payroll tax hike and new rules related to partnership audits. Below is a summary of some of the more important tax changes. We will provide a more detailed analysis of these provisions in the coming days.
Payroll Mobility Tax Hike
The Metropolitan Commuter Transportation Mobility Tax (MCTMT) rate is increased for employers with more than $10 million in payroll. The rate for New York City employers will increase to nearly 0.9% from the current 0.6%. Employers in surrounding areas that are part of the New York City public transportation network, such as the Hudson Valley and Long Island, will see an increase from about 0.3% to about 0.6%. However, certain smaller employers will receive a 50% reduction in their payroll taxes.
The increase is intended to pay for a shortfall in funding for the Metropolitan Transportation Authority’s five-year capital plan. The MCTMT is imposed on certain employers and self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). The tax is imposed on employers in the MCTD that are required to withhold state taxes and have a payroll exceeding $312,500 in any calendar quarter. The tax is also imposed on self-employed individuals, including partners, with net earnings from the district exceeding $50,000.
Federal Partnership Audit Conformity
The 2025-2026 budget also conforms New York to the federal partnership audit rules. There was a prior disconnect because New York only requires reporting federal changes to partnership income to the state when there is a federal audit or an amended federal return is filed. However, due to adopting the federal partnership audit rules in 2018, partners subject to these rules are not permitted or required to file amended federal returns. Thus, New York’s federal adjustment reporting mechanism is not triggered.
The New York budget now conforms the state provisions to the federal provisions to ensure adjustments are reported at the state level. However, several partnership issues that are not addressed in the federal provisions, e.g, treatment of nonresident partners and apportionment for multistate partnerships, arise at the state level. In addition, the New York provisions are retroactive to when the federal provisions were enacted. New York partnership taxpayers must analyze these new provisions to ensure proper compliance.
Other Changes
- Film credits: The budget provides $100 million in tax credits for independent film producers: $20 million for films with less than $10 million of qualified production costs and $80 million for films with more than $10 million of production costs. The credit equals 30% of qualified film production costs, with an additional 10% if the film is shot upstate and the production has a budget of at least $500,000. The budget allows up to 40% of the credit to offset the salary costs of actors and directors. Previously, there was a $500,000 per-person limit for such costs.
- “Millionaire’s” tax: The budget extends the higher personal income tax rate on individuals who make over $1.1 million annually through 2032. When first enacted in 2021, this higher tax rate for “millionaires” was set to expire in 2027. However, like most “temporary” tax hikes, it looks to be permanent.
- Personal income tax rate cut: The personal income tax rates for married couples filing jointly, making up to $323,200, are reduced.
Author: Mike Mcloughlin | [email protected]
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For more information on this topic, please contact a member of Withum’s State and Local Tax Services Team.
