How New York income tax works: AGI, nine brackets, and the city tax on the same form

New York starts its return from federal adjusted gross income, line 11 of Form 1040, and then does almost everything over again its own way. It has its own standard deduction, $8,000 single and $16,050 joint, unchanged for years. It has its own itemized deduction on Form IT-196, which you may take even if you took the federal standard deduction. It has nine brackets, from 3.9% to 10.9%, with the lowest five cut a tenth of a point for 2026 and again for 2027. And for the four in ten New Yorkers who live in the five boroughs or in Yonkers, it collects a second income tax on the same form. The rest of this article is those five facts, in order, with the arithmetic.

Because the starting number is AGI, a federal deduction taken below that line is worth nothing here. The $6,000 federal senior deduction, the deduction for overtime pay, the car-loan interest deduction and the 20% qualified business income deduction never reach the IT-201. The one exception New York has made is tips: for 2026 the state added a subtraction of up to $25,000 of qualified tips, tied to the federal deduction, so a tipped worker gets the break on both returns while a nurse working overtime gets it only on the federal one. Above-the-line federal adjustments, an IRA deposit, an HSA contribution, student loan interest, half of self-employment tax, flow through and cut New York tax too.

Who files

A full-year resident files Form IT-201, reports all income from everywhere, and takes a credit on Form IT-112-R for tax paid to another state on income earned there. A part-year resident or a nonresident with New York-source income files Form IT-203 instead; that mechanism is in Moving to New York. New York has no reciprocal agreement with any state, so a New Jersey or Connecticut commuter files the IT-203 every year. A resident must file when New York AGI exceeds the standard deduction, and should file below that line to recover withholding or collect the refundable credits.

Where it starts: federal AGI

Line 19 of the IT-201 is federal adjusted gross income, copied from the 1040. Lines 20 through 23 add a short list of items New York taxes that the federal return does not; lines 25 through 31 subtract a longer list. The result on line 33 is New York adjusted gross income, the number that drives the recapture of lower brackets, the phase-down of itemized deductions and the income tests for several credits.

The additions

For most households there is one, and for many there is none.

Other states’ municipal bond interest. Interest on bonds issued by other states and their localities is tax-exempt federally and taxable in New York. Interest on New York’s own bonds stays exempt. A brokerage 1099 that lumps municipal interest together has to be split by issuer.

Bonus depreciation. New York has not followed federal bonus depreciation for individuals since 2003. A landlord, sole proprietor or farmer who took bonus depreciation on a federal Schedule C, E or F adds it back on Form IT-398 and deducts New York’s regular depreciation instead. The FY2027 budget extended that stance to the 2025 federal law’s 100% expensing of qualified production property and research costs, retroactive to 2025, with penalty relief for 2025 underpayments it caused. Over the asset’s life the totals match; the timing does not.

Alimony received under a post-2018 decree. New York kept the pre-2019 rules: the recipient adds alimony, the payer subtracts it, for every decree.

529 withdrawals not used for qualified expenses, and a few Form IT-225 items that rarely touch a wage earner.

The subtractions

This is where the New York return gives money back. The two biggest lines belong to retirees and are covered in New York for retirees.

The 2026 IT-201 instructions had not been published when this was written; line numbers are from the 2025 form and the tip subtraction code is to come.

The tip subtraction is new. The federal deduction for tips is taken below the AGI line, so for 2025 every dollar of tips was taxed in full by New York. For 2026 the FY2027 budget, signed May 28, 2026, added a subtraction of up to $25,000 of tips “to the extent allowed as a federal deduction,” so whatever the federal rules disallow, New York disallows too. A server with $8,000 of tips and $30,000 of wages saves about $432 of state tax. Overtime got no such treatment.

The deduction: standard or New York itemized

Line 34 is the New York standard deduction: $8,000 for a single filer or a married person filing separately, $16,050 for a joint return or a qualifying surviving spouse, $11,200 for head of household, and $3,100 for a single filer who can be claimed as someone else’s dependent. These are 2025 figures carried forward; no law has changed them and they are not indexed, which is why they have sat still while the federal standard deduction has nearly doubled.

Or you itemize on Form IT-196, and here is the thing most self-prepared New York returns get wrong: the New York choice is independent of the federal one. You may take the federal standard deduction and itemize for New York, and many homeowners should. The IT-196 follows the federal Schedule A categories with two large differences. State and local income taxes come out entirely, since New York will not let you deduct its own tax. Property taxes stay in, with no $40,000 cap; the federal SALT cap does not exist on the New York return. Mortgage interest, charitable gifts, medical expenses above the federal floor and the college tuition deduction of up to $10,000 per student round it out. A couple paying $12,000 of property tax and $8,000 of mortgage interest has $20,000 of New York itemized deductions against a $16,050 standard deduction, and saves about $213 by itemizing for the state even though the federal return took the $32,200 standard deduction.

Itemized deductions are cut back as New York AGI rises, beginning around $100,000 (verify); above $1,000,000 only half of charitable gifts and nothing else is allowed, and above $10,000,000 a quarter, limits the FY2027 budget extended through 2029.

Line 36 then subtracts $1,000 for each dependent. There is no exemption for the taxpayer or spouse. A married couple with two children claims $2,000. Line 37 is New York taxable income.

The rates

The five lowest rates are confirmed for 2026 in the Department’s withholding publication NYS-50-T-NYS (1/26). The dollar thresholds are not indexed and are the 2025 figures; the 2026 IT-201 instructions are to come. For 2027 the same five rates are scheduled to fall another tenth of a point, to 3.8%, 4.3%, 5.05%, 5.3% and 5.8%.

Most New Yorkers live in the 5.4% bracket, which runs from about $14,000 to $80,650 single and $28,000 to $161,550 joint. Capital gains, dividends, interest, unemployment and gambling winnings are taxed at the same rates as wages; New York has no preferential rate for gains, so a gain taxed federally at 15% is taxed here at 5.4%, 5.9% or 6.85%. A home-sale gain excluded federally never arrives.

The recapture. The brackets are the whole story only for a filer with New York AGI of $107,650 or less. Above that, a supplemental computation called the tax benefit recapture takes back the benefit of the lower brackets over a $50,000 range past each threshold, after which the filer pays the top rate reached on every dollar of taxable income, not just the top slice. A joint filer with $400,000 of New York AGI pays a flat 6.85% on all of it. Tax programs do the worksheets; the point for a reader is that inside those ranges the true marginal rate runs higher than any printed rate.

New York City and Yonkers

Two localities tax income, both on the IT-201 rather than on a separate return. New York City residents pay a city tax on New York taxable income at 3.078% up to $12,000 single ($21,600 joint, $14,400 head of household), 3.762% to $25,000 ($45,000; $30,000), 3.819% to $50,000 ($90,000; $60,000) and 3.876% above (verify thresholds); the Department confirmed no change for 2026. Only residents pay. Someone who lives in Nassau County or New Jersey and works in Manhattan owes the city nothing. City residents get back a school tax credit of $125 joint or $63 single at incomes of $250,000 or less, plus a small rate reduction amount, and low-income city residents with a dependent may owe no city tax at all under a credit new for 2025.

Yonkers residents pay a surcharge of 16.75% of their net New York State tax on line 55. A Yonkers resident with $3,000 of state tax owes $503 to the city. Nonresidents who work in Yonkers pay a 0.5% earnings tax on wages and self-employment income earned there, computed on Form Y-203. The residency tests for the city and for Yonkers are the same as for the state, with the locality’s name substituted: domicile, or a permanent place of abode plus 184 days.

Self-employed people in the twelve-county MTA region also pay the MCTMT on net earnings above $150,000 (verify effective date), 0.60% in the five boroughs and 0.34% in the suburban counties. No other county, city or school district in New York taxes income.

The credits

New York credits come in two kinds. Nonrefundable credits reduce tax to zero and stop. The refundable ones, the Empire State child credit, the earned income credit, the child and dependent care credit and the real property tax credit among them, pay out whatever exceeds the tax, but most of them require a full year of residency.

The family credits are worked through in Credits and breaks for New York families. The one every household should know is the Empire State child credit, which rose for 2026 from $330 to $500 for school-age children; a family with a two-year-old and a nine-year-old gets $1,500, refundable.

Withholding and estimated payments

Employers withhold from Form IT-2104, which covers the state, the city and Yonkers on one certificate; its allowances are New York’s, not the federal W-4’s. Pension payers are not required to withhold New York tax; a retiree who wants it asks on Form IT-2104-P.

Estimated payments are required when $300 or more of combined state, city and Yonkers tax is expected after withholding and credits, a far lower threshold than the federal $1,000. Payments are due April 15, June 15 and September 15, 2026 and January 15, 2027, on Form IT-2105 or through an Online Services account. The safe harbor is 90% of this year’s tax or 100% of last year’s, rising to 110% of last year’s if 2025 New York AGI exceeded $150,000 ($75,000 married filing separately). The self-employed, landlords and anyone with a large capital gain are the usual people caught; so are retirees drawing on IRAs with no state withholding.

How to file

The return is due April 15, 2027. New York Free File through tax.ny.gov covers federal AGI up to $89,000 for 2025 returns, with the 2026 limit to come; IRS Direct File is not running for 2026. An extension to October 15, 2027 is automatic but must be requested by April 15 on Form IT-370 or online, with the tax paid; a federal Form 4868 by itself does not extend New York. Dates and forms are collected in New York calendar and forms.

What trips people up

• Taking the New York standard deduction because the federal return did. Homeowners with $16,050 or more of property tax, mortgage interest and gifts should itemize on IT-196.
• A pension from a private employer subtracted in full. Only government pensions come off entirely; the rest is capped at $20,000 and needs age 59½.
• Overtime or the senior deduction expected to reduce New York tax. Neither reaches the return.
• Tips subtracted on a 2025 return. The subtraction starts with 2026.
• New York City tax paid by a commuter, or not paid by someone who kept a Manhattan apartment and spent 184 days in it.
• The Empire State child credit claimed on a part-year return. It needs a full year.
• A 529 contribution to another state’s plan subtracted. Only New York’s program qualifies.
• Estimated payments skipped because the balance due was under $1,000. New York’s line is $300.
• Other states’ municipal bond interest left off the additions.