New York Tax Law Changes to Watch in 2025

The tax landscape in New York State is always evolving, and as we move through 2025, there are significant changes that small business owners and HR professionals should be aware of. Staying ahead of these updates isn't just about compliance; it's about optimizing your financial strategies and ensuring your business and employees benefit from new opportunities.

Critical Update for Agricultural Businesses: The Farm Employer Overtime Credit

For our agricultural clients and those in rural communities, the "Farm Employer Overtime Credit" is undergoing important changes. For taxable years beginning on or after January 1, 2026, this significant incentive for managing overtime costs for eligible farm employees will now be primarily administered by the Department of Agriculture and Markets, with the tax credit calculations remaining under the Tax Law.

The credit amount for qualified farm employers will be 118% of the aggregate overtime expenses certified by the Department of Agriculture and Markets. This represents a substantial opportunity for agricultural businesses to offset the costs associated with overtime.

Actionable Steps for Agricultural Businesses:

• Annual Certification: Qualified farm employers can apply for an "overtime expense certificate" by February 1st after the end of the calendar year to certify their overtime expenses. This certification is crucial for claiming the credit.
• Advance Payments: If your business intends to request an advance payment of the credit, you must submit a preliminary application by September 30th of the current calendar year. The Department of Agriculture and Markets will issue a preliminary overtime expense certificate for this purpose.
• Professional Employer Organizations (PEOs): For eligible overtime indirectly paid through a professional employer organization during 2024 and/or 2025, a credit may be allowed as if paid directly by the farm employer. This requires applying for and receiving certification by the Department of Agriculture and Markets for these indirect payments.

This focus on the Farm Employer Overtime Credit underscores New York State's commitment to supporting its agricultural sector, and we encourage all eligible businesses to explore how these changes can benefit their operations.

Inflation Refund Credit: A Potential Boost for Your Employees

Good news for many New York residents! For the 2025 tax year, an "inflation refund credit" is being introduced. This can directly benefit your employees who are New York residents. To be eligible, taxpayers must have been a full-year New York resident in 2023. The credit amount varies based on their 2023 New York adjusted gross income (AGI) and filing status.

• Married filing jointly or qualified surviving spouse: AGI over $150,000 up to $300,000 nets a $300 credit. If their AGI was $150,000 or less, they could receive $400.
• Single, married filing separately, or head of household: If their AGI was over $75,000 up to $150,000, expect a $150 credit. For an AGI of $75,000 or less, the credit is $200.

Actionable Tip: While this is a personal credit, consider sharing this information with your employees. The Department of Taxation and Finance will determine eligibility based on 2023 tax return information and plans to advance payments to eligible taxpayers. Any credit paid that is includible in federal gross income will not be subject to state or local income tax.

Enhanced Empire State Child Credit

This is excellent news to communicate to your employees with children. For taxable years beginning on and after January 1, 2025, and before January 1, 2026, the Empire State Child Credit offers:

• $1,000 per qualifying child aged three or younger.
• $330 per qualifying child aged four through sixteen.

For subsequent taxable years beginning on and after January 1, 2026, and before January 1, 2028, the credit for children aged four through sixteen increases to $500. There are income-based reductions for higher earners, with specific threshold amounts for different filing statuses.

Actionable Tip for HR: Proactively inform your employees about this enhanced credit. Provide links to official New York State tax resources where they can find more details on eligibility requirements. This can be a valuable benefit for many families and demonstrates your commitment to their financial well-being.

Changes for Real Estate Holdings 

If your business holds residential real estate, pay close attention. Starting July 1, 2025, new rules will apply to "covered entities" (institutional real estate investors or entities funded by them) concerning depreciation and interest deductions on "covered properties" (residential properties with no more than two dwelling units in New York).

• Key Change: No depreciation deductions will be allowed for covered properties.
• Interest Deduction Impact: The federal interest deduction will generally not be allowed and must be added back to your income. However, there's an important exception: this add-back doesn't apply to interest paid or accrued in the taxable year when the property is sold to an individual for their primary residence or to a non-profit focused on affordable housing.

Actionable Tip: Review your business's real estate holdings and consult with your tax advisor to understand the full impact of these changes on your depreciation and interest deductions.

Other Considerations

Increased Estimated Tax Threshold

For taxable years beginning on or after January 1, 2026, the estimated tax threshold under Article 9-A of the tax law is increasing from $1,000 to $5,000. This could mean fewer estimated tax payments for some businesses.

Actionable Tip: If your business currently makes estimated tax payments, review your projected 2026 tax liability. This increased threshold might allow you to adjust your payment schedule, potentially reducing administrative burden.

Organ Donation Credit

A new "organ donation credit" is available for full-year resident taxpayers for taxable years beginning on or after January 1, 2025. This credit, up to $10,000, is for unreimbursed expenses related to living organ donation (liver, pancreas, kidney, intestine, lung, or bone marrow). Eligible expenses include travel, lodging, and lost wages.

Actionable Tip: While specific, this is a valuable credit that HR professionals may wish to share with their employees as a potential benefit.

Stay Informed, Stay Ahead

The legislative details can be complex, and these changes represent just a portion of the ongoing tax updates. We strongly encourage you to:

• Consult a Professional: Always speak with a qualified tax advisor or payroll specialist to understand how these changes specifically impact your business.
• Monitor Official Sources: Regularly check the New York State Department of Taxation and Finance website and other .gov resources for the latest guidance and forms.

Being proactive with these tax changes will help you confidently navigate 2025 and ensure your business and employees are well-prepared.