On May 9, 2025, Governor Kathy Hochul signed New York State’s fiscal year 2026 budget into law, bringing significant developments for small businesses. The state has taken steps to address its $6.2 billion Unemployment Insurance (UI) debt owed to the federal government due to pandemic-related borrowing. For four years, New York employers have faced high state and federal UI tax rates and an additional surcharge, costing approximately $400 more per employee annually to reduce this debt.
The National Federation of Independent Business (NFIB) has been a prominent advocate for the state to cover the UI debt rather than burdening small businesses. This year’s budget allocates $8 billion to pay off the outstanding UI debt and deposits funds into the UI trust fund to lower related taxes. “This is a huge victory for NFIB and small business owners across New York State,” stated NFIB.
Another issue addressed in the budget involves lawsuits concerning payment schedules for manual workers. Plaintiffs’ attorneys have pursued multi-million-dollar lawsuits against small business owners over bi-weekly payments instead of weekly ones, despite employees being fully paid. The new budget includes provisions that limit penalties in these lawsuits, reducing liability and exposure for small business owners. NFIB noted that this measure will save businesses with pending litigation and help limit future damages.
Additionally, changes to the Metropolitan Transportation Authority (MTA) payroll tax are set to take effect on July 1, 2025. Employers in MTA zone one (the five New York City boroughs) will see a tiered tax rate structure based on payroll expenses:
– 0.055% for payrolls between $312,500 and $375,000 each quarter.
– 0.155% for payrolls between $375,000 and $437,500 each quarter.
– 0.60% for payrolls between $437,500 and $2,500,000 each quarter.
– 0.895% for payrolls over $2,500,000 each quarter.
For employers in MTA zone two (counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester), the tax rates are:
– 0.055% for payrolls between $312,500 and $375,000 each quarter.
– 0.155% for payrolls between $375,000 and $437,500 each quarter.
– 0.34% for payrolls between $437,500 and $2,500,000 each quarter.
– 0.635% for payrolls over $2,500,000 each quarter.
The budget also introduces a middle-class tax cut effective in 2026 aimed at providing relief for small businesses taxed via personal income tax rates.
NFIB continues to analyze the full scope of the state budget and promises further updates as necessary: “These victories would not have been possible without the participation and support of our members.”
