A large swath of New Yorkers could benefit from a major tax cut aimed at middle-class workers.
Gov. Kathy Hochul’s 2026 State Budget agreement will deliver nearly $1 billion in tax relief to more than 8.3 million New Yorkers. The measure would provide immediate savings to taxpayers earning up to $323,000 for joint filers.
The tax package would lower middle-class taxes to the lowest level in nearly 70 years, Hochul says. Once in place, the middle-class tax cut is estimated to provide hundreds of dollars in average savings for 75% of state filers — that’s three out of every four taxpayers.
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The tax cuts would take effect in the current tax year, according to the governor’s agreement.
Hochul’s approved budget plan includes other highly anticipated tax breaks, such as increasing the Empire State Child Credit and a first-of-its-kind inflation refund.
The tax plans come as state lawmakers argue New Yorkers may need to brace for more taxes and fees to supplement the Metropolitan Transportation Authority’s (MTA) budget shortfall. They also come at the heels of a new congestion pricing toll, which has lost the governor some favor among Manhattan’s commuters.
Here’s what you should know about the governor’s budget agreement for New York taxes in 2025.
New York Inflation Refund
It’s no secret that inflation has been a sour note for New Yorkers.
From higher prices at the grocery store for milk and eggs to higher prices on clothing or events. Many locals have had to adjust their spending to keep up with their daily expenses.
New York also levies a 4% state sales tax, with an average combined state and local sales tax rate of 8.53%. That’s among the highest state sales taxes in the country.
“Because of inflation, New York has generated unprecedented revenues through the sales tax — now we’re returning that cash back to middle-class families,” Hochul said in a statement accompanying the release of her budget plans. “It’s simple: the cost of living is still too damn high, and New Yorkers deserve a break.”
The FY 2026 State Budget agreement includes Hochul’s plan for the state’s first-ever inflation refund. The measure would deliver $2 billion in refunds back to more than 8 million New York taxpayers.
Who would benefit from the one-time New York Inflation Refund?
- Joint filers who earn $150,000 or less would receive a $400 refund check
- Joint filers who earn more than $150,000 but no greater than $300,000 would receive a $300 check
- Single taxpayers who earn $75,000 or less would receive a $200 check
- Single filers with incomes over $75,000 but no more than $150,000 will receive a $150 check
Details regarding the disbursement of inflation refund checks will be announced soon, according to the governor's office.
Expanding the Empire State Child Credit
Millions of children in New York benefit from the state child tax credit, known as the Empire State Child Credit.
Hochul’s state budget agreement includes doubling the child tax credit, by increasing the maximum annual credit to $1,000 per child under age 4 and up to $500 per child from the ages of 4 to 16. Hochul’s expansion would double the size of the average credit from $472 to $943.
The expansion also eliminates a longstanding provision that restricted New York’s poorest families from accessing the credit. As a result, more than 187,000 children will now be eligible for the credit, per the governor’s office.
As reported by Kiplinger, the Empire State Child Credit expansion would benefit up to 1.6 million New York taxpayers and 2.75 million children.
Free School Meals for New York Students
More than 2.7 million New York children won’t have to worry about their school meals anymore. The 2026 State Budget agreement includes Hochul’s vow that students can receive breakfast and lunch for free at school, regardless of their parents’ income.
Free school meals are estimated to save families $165 per child in grocery spending.
Can New Yorkers expect tax cuts in 2025?
Hochul’s tax breaks for working families will be a welcome relief to millions of New York taxpayers.
However, state lawmakers warned that raising taxes for New Yorkers wasn’t off the table this year.
Legislative leaders still have to figure out how to fill the MTA’s multi-billion-dollar budget gap. As reported by Kiplinger, the MTA’s five-year $65 billion capital plan was shot down in December due to a failure to indicate the source of half its revenue.
Notably, lawmakers said the newly implemented congestion pricing wouldn't be enough to fill the budget gap.
The concerns come after MTA officials signed off on a new construction plan in September, estimated to be worth $33 billion. The plan, scheduled from 2025 to 2029, aims to repair and expand the MTA’s infrastructure.
Stay tuned as we cover more developments on your state taxes and when you can expect to see some of Hochul’s tax breaks to hit your wallet.
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