The One, Big Beautiful Bill's Impact on NY Employers

Navigating the intersection of federal and state law can feel like a chore, but it's crucial for staying compliant. The good news is that New York has a straightforward—if tricky—rule for how it handles federal tax changes. Understanding this rule is the key to demystifying OBBBA’s impact on your payroll.

The Golden Rule: New York's "Rolling Conformity"

New York is what’s known as a “rolling conformity” state. In simple terms, this means that unless our state legislature passes a specific law to opt out, New York automatically adopts the current version of the Internal Revenue Code (IRC).

For the most part, you can assume that what’s now law at the federal level is also law at the state level. This provides some much-needed clarity for employers. For example, key OBBBA provisions that will now apply in New York include:

• Permanent Tax Brackets: The seven-tier federal income tax withholding brackets (ranging from 10% to 37%) are now permanent, providing stability for tax calculations.
• New Employee Tax Credits: The new temporary tax credits for employee tips and "qualified overtime" will be part of the landscape from 2025 to 2028. Remember, you will still withhold taxes on this income as usual; the employee receives the benefit when they file their annual tax return.
• Increased DCAP Limits: The annual pre-tax limit for Dependent Care Assistance Programs (DCAPs) will increase from $5,000 to $7,500 beginning in 2026.

The Big Exception: Moving Expenses

While conformity simplifies things, there are always exceptions. The most significant one for New York employers under OBBBA is the treatment of moving expenses.

Federally, OBBBA has permanently eliminated the tax deduction for moving expenses for most employees, meaning any reimbursement you provide is now considered taxable income. 

However, New York is one of the few states that has not conformed to this specific change. At the state level, New York still allows a tax deduction for reasonable moving expenses. This creates a critical split in how you must treat and report these payments: taxable for federal purposes, but not for New York State purposes.

Staying Ahead of the Curve

Understanding New York’s conformity status is the first step to confidently managing your payroll under OBBBA. While most federal rules will now be your guide, it’s the exceptions that can lead to compliance headaches. Partnering with a payroll expert who understands the nuances of both federal and New York State law is the best way to ensure you’re always doing right by your business and your team.