New York · what’s new

What’s new in New York for 2026: lower rates, a break for tips, nothing for overtime

Two Albany budgets, a year apart, decide what the 2026 IT-201 looks like. The first cut the rates most New Yorkers pay and raised the child credit. The second answered the federal 2025 tax law: tips yes, overtime no, seniors no, car loans no. Here is what changed, what did not, and what the return filed in 2027 will look like next to last year’s.

By Charles Trautman, EA, editor

Need to Know Tax · written from New York State Department of Taxation and Finance sources, November 3, 2026; updated November 12, 2026 after the election · not yet reviewed by a New York practitioner

After the November 3, 2026 election. No statewide measure on the ballot. The five lowest rates fell 0.1 point for 2026 and fall another 0.1 for 2027. New York in 2027 and beyond →

The bottom line

The five lowest rates are each 0.1 point lower for 2026 (3.9% to 5.9%) and fall another 0.1 point for 2027. The top four rates did not move.
The standard deduction is unchanged: $8,000 single, $11,200 head of household, $16,050 joint.
New for 2026: New York subtracts up to $25,000 of qualified tips, in line with the federal deduction (budget signed May 28, 2026). There is no New York match for the overtime, senior or car-loan deductions.
The child and dependent care credit is rebuilt for 2026, with higher expense limits.
A federal extension does not extend the New York return; file Form IT-370.
Forms IT-201 and IT-203 are due Thursday, April 15, 2027.
No statewide measure was on the November 3 ballot.

For most New York households the 2026 return will show slightly less tax on the same income, for one plain reason: the five lowest rates each fell a tenth of a point on January 1, 2026, to 3.9%, 4.4%, 5.15%, 5.4% and 5.9%. That is a cut of $1 for every $1,000 of taxable income for anyone whose income stays under the 5.9% band, and it is already in the withholding tables, so most people have been collecting it a few dollars a paycheck all year. The bigger changes are narrower. Tipped workers get a new subtraction of up to $25,000 that follows the federal tip deduction. Parents of school-age children get $500 instead of $330 per child from the Empire State child credit. Working parents paying for child care get a credit rebuilt from the ground up. And the federal deductions for overtime, for people 65 and older, and for car loan interest do nothing in New York at all, because they are taken after the federal adjusted gross income line where New York begins.

Both budgets are law. Chapter 59 of the Laws of 2025, signed May 9, 2025, carries the rate cut and the child credit. The fiscal 2027 budget, signed May 28, 2026, carries the tip subtraction, the child care credit, a one-time energy rebate, and the refusal to follow two business provisions of the federal law. The New York State Department of Taxation and Finance has confirmed the new rates in its 2026 withholding publication but has not published the 2026 IT-201 instructions, so some mechanics below are marked to come.

The rate cut

New York has nine brackets. The top four, 6.85%, 9.65%, 10.3% and 10.9%, did not move, and the three highest were extended through 2032 instead of expiring after 2027 as scheduled. The five lowest each fell 0.1 point for 2026 and fall another 0.1 point for 2027.

New York rates on the five lowest brackets, 2025 to 2027
Taxable income, single	Taxable income, joint	2025	2026	2027 (scheduled)
$0 to $8,500	$0 to $17,150	4.0%	3.9%	3.8%
$8,500 to $11,700	$17,150 to $23,600	4.5%	4.4%	4.3%
$11,700 to $13,900	$23,600 to $27,900	5.25%	5.15%	5.05%
$13,900 to $80,650	$27,900 to $161,550	5.5%	5.4%	5.3%
$80,650 to $215,400	$161,550 to $323,200	6.0%	5.9%	5.8%
$215,400 to $1,077,550	$323,200 to $2,155,350	6.85%	6.85%	6.85%

The bracket dollar amounts are not indexed and have not changed. The 2026 rates and the single thresholds through $80,650 are confirmed on the Department’s Publication NYS-50-T-NYS (1/26); the joint thresholds are from the 2025 rate schedule. The 2027 rates follow from the statute’s two-year phase-in but the Department has not printed them. Head of household thresholds are in the figures article.

Because the dollar brackets stayed put, the cut is easy to value: one dollar per thousand of taxable income for anyone whose income sits in the first four brackets, $50 on $50,000, $90 on $90,000. Above $107,650 of New York adjusted gross income the state’s tax benefit recapture starts replacing the lower rates with the filer’s top rate, so the cut shrinks as income rises past that point and disappears once the recapture has fully taken hold. New York City and Yonkers rates did not change.

Tips: New York follows the federal deduction

The 2025 federal law let workers in customarily tipped occupations deduct up to $25,000 of qualified tips for 2025 through 2028, phasing out above $150,000 of modified AGI. The deduction is taken after adjusted gross income, and New York’s return starts from federal AGI, so for 2025 it never reached the IT-201 and tips were taxed by the state in full.

For 2026 that changes. Part B of the fiscal 2027 budget adds a subtraction under Tax Law section 612 for up to $25,000 of tips, to the extent allowed as a federal deduction under IRC section 224, for tax years beginning on or after January 1, 2026. In plain terms: whatever tip deduction appears on your 2026 federal return comes off again on your New York return, through Form IT-225, and because it reduces New York AGI it also comes off the New York City and Yonkers tax. What the Department has not yet said is the IT-225 code, whether the $25,000 is per taxpayer or per joint return, and whether the federal income phase-out carries over on its own (verify). The 2025 return is not reopened; a server who paid New York tax on $14,000 of tips for 2025 paid it correctly.

Overtime, the senior deduction, car loan interest: no change, and that is the news

The same federal law created a deduction for up to $12,500 ($25,000 joint) of overtime premium pay, a $6,000 deduction for each person 65 or older, and a deduction for up to $10,000 of interest on a loan for a new American-assembled car. All three are below the line. None reaches the New York return, and New York enacted no counterpart to any of them. Overtime premium pay is taxed by the state, the city and Yonkers for 2025 and 2026 exactly as it was in 2024. The senior deduction does nothing here; the state’s age-based breaks remain the $20,000 pension and annuity exclusion at 59½, the Social Security subtraction and Enhanced STAR. Car loan interest has never been deductible in New York. No add-back is needed for any of them; the income never left the New York base. A worker with heavy overtime may owe New York while owing the IRS nothing, and should check withholding on Form IT-2104 rather than assume the federal refund means a state refund too. See the federal article on tips, overtime and the senior deduction.

Worked example: a bartender’s 2025 and 2026 New York returns

Single, under 65, no dependents, New York resident outside the city. $38,000 of wages, $12,000 of reported tips and $4,000 of overtime premium pay in each year. Federal AGI is $54,000 both years. New York standard deduction $8,000. The 2026 column assumes the full $12,000 of tips is allowed as a federal deduction and so as a New York subtraction (verify mechanics).

	2025 return	2026 return
Federal AGI (IT-201 line 19)	$54,000	$54,000
Tip subtraction (IT-225)	none	−$12,000
Overtime subtraction	none	none
New York AGI	$54,000	$42,000
Standard deduction	−$8,000	−$8,000
New York taxable income	$46,000	$34,000
Tax on first $8,500	$340.00 at 4.0%	$331.50 at 3.9%
Tax on $8,500 to $11,700	$144.00 at 4.5%	$140.80 at 4.4%
Tax on $11,700 to $13,900	$115.50 at 5.25%	$113.30 at 5.15%
Tax on the rest	$1,765.50 at 5.5%	$1,085.40 at 5.4%
New York State tax	$2,365	$1,671
Saving from the rate cut alone		$46
Saving from the tip subtraction		$648
New York tax still paid on the $4,000 of overtime	$220	$216

The rate cut is worth $46, a tenth of a percent of $46,000. The tip subtraction is worth fourteen times that. The overtime stays in the base both years. Had this bartender lived in New York City, the $12,000 subtraction would also have removed about $450 of city tax (verify).

Families: a bigger child credit and a new child care credit

Empire State child credit. For 2026 the credit is $1,000 for each child under 4 and $500 for each child age 4 through 16, up from $330 for the older group in 2025. It is refundable, requires full-year residency, accepts an ITIN, and is reduced by $16.50 for each $1,000 of federal AGI over $110,000 joint, $75,000 single or head of household, and $55,000 married filing separately, thresholds that did not change. Form IT-213.

Child and dependent care credit. Through 2025 New York’s credit was a percentage of the federal credit. Part A of the fiscal 2027 budget replaces it for 2026 with a credit figured from scratch: 55% of qualifying expenses at New York AGI of $15,000 or less, sliding down to a floor of 4%, with a further reduction above $750,000 of New York AGI. Expenses are capped at $3,000 for one qualifying person, $6,000 for two, $7,500 for three, $8,500 for four and $9,000 for five or more, and at the lower-earning spouse’s earned income. It is refundable and generally not available to married couples filing separately. Last year’s software logic will be wrong for this year; the 2026 Form IT-216 is to come. The detail is in the families article.

Money arriving outside the return

POWER energy rebate. Part FF of the fiscal 2027 budget creates a one-time refundable credit for 2026, paid in advance by check or deposit in fall 2026 from the 2024 return: $200 for joint filers with 2024 New York AGI up to $150,000, $150 for joint filers from $150,000 to $300,000, and $100 for single, head of household and married-filing-separately filers up to $150,000. You must have been a full-year resident in 2024, filed a timely 2024 resident return, and not been claimed as a dependent. The payment is treated as a 2026 overpayment and is not New York income. Nothing goes on the 2026 IT-201 unless a payment was missed, in which case there is a correction process (verify). The $400, $300, $200 and $150 inflation refund checks of fall 2025 were likewise not New York income and are not repeated for 2026.

What the state would not follow

New York has refused federal bonus depreciation for individuals since 2003, and the fiscal 2027 budget, Part F, extends the refusal to two new pieces of the 2025 federal law: the 100% expensing of qualified production property under IRC section 168(n) and the immediate deduction of research expenses under section 174A. The decoupling is retroactive to tax years beginning on or after January 1, 2025, with interest and penalty relief for 2025 returns that underpaid solely because of it. A sole proprietor, landlord or farmer adds the federal amount back and recovers it over the asset’s life, as with ordinary bonus depreciation on Form IT-398. Wage earners and retirees are not touched.

The budget also extended through 2029 the rule cutting the New York itemized deduction for charitable gifts to 50% for New York AGI over $1 million and 25% over $10 million (Part C), and dropped a proposal to tax federally excluded small business stock gain. The federal SALT cap, raised to $40,000 for 2025, is irrelevant to New York’s own itemized deduction on Form IT-196, which never allowed state income tax and never capped property tax; see the federal SALT article.

The smaller items

Estate tax basic exclusion rises to $7,350,000 for deaths in 2026, from $7,160,000. The cliff remains: an estate more than about 5% over the line loses the entire exclusion (verify).
Enhanced STAR income limit is $110,750 for 2026 school-tax benefits and $113,550 for 2027.
MCTMT: the self-employment exemption threshold in the MTA region was raised from $50,000 to $150,000 of net earnings per zone; the 2025 IT-201 instructions still print $50,000, so the effective date is to be confirmed (verify).
New subtraction for IRC section 962(d) distributions (Part AA); farm food-pantry donation credit raised to 50% and $20,000 (Part BB).
New York City: the low-income credit is indexed from 2026 (thresholds to come); the pied-à-terre surcharge that started July 1, 2026 is a property tax and does not touch the IT-201.
IRS Direct File is not offered for the 2026 filing season. New York Free File continues; the 2025 limit was $89,000 of federal AGI and the 2026 limit is to come.
No statewide ballot measure on November 3, 2026. The governor’s race was on the ballot and the challenger campaigned on cutting income and property taxes; nothing is enacted beyond the scheduled 2027 rate cut.

The 2026 return next to the 2025 return

Wage earners: a little less tax at the same income, already in withholding since January. Overtime still taxed.
Tipped workers: a new subtraction on IT-225, worth 5.4% of the tips for most, more for city residents.
Retirees: no change. The federal senior deduction does nothing here.
Parents: $500 instead of $330 for each child 4 through 16; a wholly new child care credit calculation.
Business owners, landlords and farmers: add back section 168(n) and 174A amounts; 2025 may need an amended return, without penalty.
High earners: rates unchanged above $215,400 single / $323,200 joint; estate exclusion up $190,000.

Behind the scenes: why tips got a subtraction and overtime did not

New York’s return begins at federal adjusted gross income and then applies its own list of modifications in Tax Law section 612. Anything Congress puts below the AGI line is invisible to New York unless Albany writes a matching subtraction. The 2025 federal law put all of its headline household deductions below the line, so the state kept the revenue without lifting a finger, and the legislature’s job became choosing what to give back.

It chose tips. Tipped workers are a smaller group than hourly workers with overtime, so a tip subtraction costs the state far less, and by tying it to the federal deduction the state borrowed the IRS’s definitions and its income phase-out instead of writing its own. An overtime subtraction would have reached far more workers and competed for money with the rate cut the same legislature was already paying for. The result is a return where a server and a nurse with the same $54,000 of income pay noticeably different New York tax, which is new, and which will prompt questions.

What to bring

Last year’s IT-201, to compare line by line; the rate change shows up as a smaller tax on the same taxable income
W-2s showing tips in box 7 and overtime, and the federal Schedule 1-A or its equivalent showing the tip deduction allowed, so the New York subtraction can match it
Dates of birth for every child, because the credit is $1,000 under 4 and $500 from 4 through 16
Child care receipts with the provider’s name, address and tax ID, for the rebuilt IT-216
The amount and date of the POWER rebate, if one arrived, so it is not mistaken for a refund or an estimated payment
For a business, rental or farm: the federal depreciation schedule and Form 4562, for the section 168(n) and 174A add-backs
Form IT-2104 on file with the employer, if withholding has felt wrong since January

Questions people ask

Did New York cut my income tax rate for 2026?

If your taxable income is under $215,400 single or $323,200 joint, yes, by 0.1 percentage point on each of the five lowest brackets. It works out to $1 per $1,000 of taxable income for most people, and a second $1 per $1,000 is scheduled for 2027. The top four rates did not change.

Does New York have “no tax on tips” now?

Starting with the 2026 return, New York subtracts up to $25,000 of tips, matching the amount allowed as a federal deduction. Tips above that, or tips of a worker whose income is too high for the federal deduction, stay taxed. The 2025 return is unchanged; tips were fully taxed that year.

What about overtime?

Still fully taxed by New York State, New York City and Yonkers. The federal overtime deduction is below the AGI line and New York passed nothing to match it.

I am 67. Does the $6,000 federal senior deduction lower my New York tax?

No. It never reaches the New York return. Your New York breaks are the Social Security subtraction, the $20,000 pension and annuity exclusion, and STAR; see the retirees article.

Is the $200 energy rebate check taxable?

Not by New York. It is treated as an advance refund of a 2026 credit. Whether it counts as federal income depends on how the IRS treats state rebates, and the state’s exclusion is written to cover the case where it does. Nothing about it goes on the 2026 IT-201 unless you did not receive a payment you were entitled to.

Was there a tax question on the November 2026 ballot?

No statewide ballot measure of any kind. The rate cut for 2027 is already law; anything beyond that depends on the 2027 budget.

Less tax on the same wages, a new line for tips, and overtime taxed as before

Check the W-2 for tips, compare the tax line with last year’s, and do not expect the federal senior or overtime deduction to show up in Albany.

Written by Charles Trautman, EA, editor  ·  Need to Know Tax, Lone Tree, Colorado
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Updated November 12, 2026, after the November 3 election · tax year 2026 figures · awaiting review by a New York practitioner — use the right article