What Business Owners & Taxpayers Should Know About New York’s 2026-27 Budget

New York’s annual budget does more than determine how the state will spend money. It also shapes the tax rules that affect businesses, business owners, and individual taxpayers.

The recently enacted FY 2026-27 New York State Budget includes a mix of tax changes, credits, and compliance updates that could influence everything from year-end planning and business investments to personal tax savings. While many headlines focused on affordability measures for families, several provisions deserve the attention of business owners, as well.

Here’s what stands out, and what it could mean for you.

Research & Development Tax Rules No Longer Match Federal Law

One of the most significant business changes received very little public attention.

As part of last year’s federal tax legislation, businesses can once again immediately deduct qualifying domestic research and experimental (R&D) expenses for federal tax purposes. New York, however, has chosen not to follow that change. Instead, beginning with tax years starting January 1, 2025, businesses must continue to capitalize and amortize many of those expenses for New York tax purposes.  

For businesses investing in software development, manufacturing improvements, engineering, product design, or other qualifying research activities, this creates a more complicated tax picture.

That means:

• Your federal and New York tax returns may now calculate deductions differently.
• Additional recordkeeping and state-specific adjustments may be required.
• Businesses may need separate tax planning strategies instead of relying solely on their federal return.

If your business regularly invests in innovation or technology, now is a good time to review how these changes affect your tax position before year-end.

Large Businesses Will Continue Paying the Higher Corporate Tax Rate

The budget also extends New York’s 7.5% corporate franchise tax rate for corporations with more than $5 million in business income through the end of the decade. Originally intended as a temporary measure, the higher rate will now remain in place for several additional years.

While this isn’t a new tax increase, it does remove the expectation that rates would soon decline. Businesses approaching or exceeding that income threshold should revisit long-term tax planning, entity structure, and income projections rather than assuming lower rates are around the corner.

More Tax Relief for Individuals and Families

A significant portion of the budget is aimed at improving affordability for New Yorkers. Among the most notable changes are:

Enhanced Child and Dependent Care Credit

Beginning with the 2026 tax year, New York is replacing its existing child and dependent care credit with a new standalone credit that is no longer tied directly to the federal calculation. The new credit is designed to provide larger benefits for many eligible taxpayers, particularly lower- and middle-income households, with credits of up to 55% of qualifying expenses.

POWER Utility Rebate Checks

To help offset rising utility costs, the budget includes approximately $1 billion for the new Protecting Our Wallets Energy Rebate (POWER) program. Payments are expected to begin later this year based on 2024 New York tax returns. Eligible taxpayers can expect:

• Joint filers with adjusted gross income up to $150,000: $200
• Joint filers earning $150,001 to $300,000: $150
• Single, head of household, and married filing separately taxpayers earning up to $150,000: $100

No Tax on Tips

Beginning in 2026, New York will conform to the new federal deduction for qualifying tip income. Eligible taxpayers may exclude up to $25,000 of qualifying tip income from New York taxable income. This change primarily affects workers in restaurants, hospitality, and other service industries.

New Compliance Requirements for Businesses

Another provision that received relatively little attention creates a statewide sales tax Certificate of Authority re-registration program.

Over the next several years, businesses holding Certificates of Authority will be required to re-register with the New York State Department of Taxation and Finance. The state expects the program to be fully implemented before December 31, 2030.

There is no immediate action required, but business owners should watch for notices from the Department of Taxation and Finance. Missing a required re-registration could create unnecessary administrative issues down the road.

Other Changes Worth Watching

Several additional provisions may affect certain taxpayers:

• New York City “Pied-à-Terre” Tax: Beginning July 1, 2026, certain high-value second homes in New York City will be subject to a new surcharge. The tax generally applies to condominiums and co-ops valued above $1 million and one- to three-family residences valued above $5 million when they are not the owner’s primary residence.
• Federal Tax Decoupling Continues: In addition to R&D expenses, New York is also decoupling from certain federal bonus depreciation provisions, meaning businesses may need separate depreciation schedules for state tax purposes.
• No Broad-Based Tax Increases: Several proposals discussed during budget negotiations, including broader increases in personal income tax rates, sales tax expansions, and changes to the pass-through entity tax (PTET), did not make it into the final budget.

What Should Business Owners Do Now?

The biggest takeaway from this year’s budget isn’t that taxes suddenly became dramatically higher or lower. It’s that New York continues to move independently of federal tax law, creating additional complexity for businesses and taxpayers alike.

For business owners, that means tax planning deserves more attention than ever. Investments in research, technology, equipment, or business expansion may now produce different results on your federal and New York returns. Individual taxpayers may also benefit from new credits and deductions, but only if they understand how the state rules apply.

The good news is that most of these changes don’t require immediate action. They do, however, reinforce the value of reviewing your tax strategy before year-end rather than waiting until tax season.

If you have questions about how the 2026-27 New York State Budget affects your business or your personal tax situation, we can help you understand the changes, identify planning opportunities, and develop a strategy that supports your long-term goals.