On May 9th, 2025, Governor Kathy Hochul signed New York State’s fiscal year 2026 budget into law, which included two major victories for small businesses. New York State will finally address the outstanding Unemployment Insurance (UI) debt. The state still owes the federal government $6.2 billion because of UI-related borrowing during the pandemic. For the last four years, New York employers have paid the highest state UI tax rates, increased federal UI tax rates, and a special interest assessment surcharge, amounting to approximately $400 more per employee per year to pay down the state’s debt. NFIB has been the leading advocacy organization calling for New York to pay the UI debt with its own coffers, rather than saddling small businesses with the bill. This year’s budget finally answers NFIB’s call by allocating $8 billion to pay off the outstanding UI debt, while also depositing money into the UI trust fund to help bring down UI-related taxes. This is a huge victory for NFIB and small business owners across New York State.

NFIB has also been a leading voice to end the devastating lawsuits related to paying manual workers every two weeks instead of every week. Plaintiffs’ attorneys have been filing multi-million-dollar lawsuits against small business owners, even though employees have been paid in full. The budget includes a commonsense provision to limit the penalties in these lawsuits, which will limit small business owners’ liability and exposure. This victory will save small businesses with pending litigation and help limit damages in future litigation.

The New York State budget also includes changes to the MTA payroll tax effective July 1, 2025. For employers in MTA zone one (the five New York City boroughs), the new tax structure will be as follows:

• Tax rate of 0.055% of the payroll expense for payroll is greater than $312,500 but less than $375,000 each quarter.
• Tax rate of 0.155% of the payroll expense for payroll is greater than $375,000 but less than $437,500 each quarter.
• Tax rate of 0.60% of the payroll expense for payroll is greater than $437,500 but less than $2,500,000 each quarter.
• Tax rate of 0.895% of the payroll expense for payroll is greater than $2,500,000 each quarter.

For employers in MTA zone two (counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester), the new tax structure is as follows:

• Tax rate of 0.055% of the payroll expense for payroll is greater than $312,500 but less than $375,000 each quarter.
• Tax rate of 0.155% of the payroll expense for payroll is greater than $375,000 but less than $437,500 each quarter.
• Tax rate of 0.34% of the payroll expense for payroll is greater than $437,500 but less than $2,500,000 each quarter.
• Tax rate of 0.635% of the payroll expense for payroll is greater than $2,500,000 each quarter.

The budget also includes a middle-class tax cut, effective in 2026, which will provide some modest relief for small businesses that pay taxes via the personal income tax (PIT) rate.

NFIB is still analyzing the entire state budget and will provide any additional relevant information. These victories would not have been possible without the participation and support of our members. Thank you for your membership and participation in NFIB’s advocacy activities.