Update State Tax and Credit Laws

Section 1. This act enacts into law major components of legislation which are necessary to implement the state fiscal plan for the 2026-2027 state fiscal year. Each component is wholly contained within a Part identified as Parts A through JJ. The effective date for each particular provision contained within such Part is set forth in the last section of such Part. Any provision in any section contained within a Part, including the effective date of the Part, which makes a reference to a section "of this act", when used in connection with that particular component, shall be deemed to mean and refer to the corresponding section of the Part in which it is found. Section three of this act sets forth the general effective date of this act.

PART A

Section 1. Paragraph 1 of subsection (c) of section 606 of the tax law, as amended by section 1 of part M of chapter 63 of the laws of 2000, is amended to read as follows:

(1) [A] For taxable years beginning before January first, two thousand twenty-six, a taxpayer shall be allowed a credit as provided herein equal to the applicable percentage of the credit allowable under section twenty-one of the internal revenue code for the same taxable year (without regard to whether the taxpayer in fact claimed the credit under such section twenty-one for such taxable year). The applicable percentage shall be the sum of (i) twenty percent and (ii) a multiplier multiplied by a fraction. For taxable years beginning in nineteen hundred ninetysix and nineteen hundred ninety-seven, the numerator of such fraction shall be the lesser of (i) four thousand dollars or (ii) fourteen thousand dollars less the New York adjusted gross income for the taxable year, provided, however, the numerator shall not be less than zero. For the taxable year beginning in nineteen hundred ninety-eight, the numerator of such fraction shall be the lesser of (i) thirteen thousand dollars or (ii) thirty thousand dollars less the New York adjusted gross income for the taxable year, provided, however, the numerator shall not be less than zero. For taxable years beginning in nineteen hundred ninety-nine, the numerator of such fraction shall be the lesser of (i) fifteen thousand dollars or (ii) fifty thousand dollars less the New York adjusted gross income for the taxable year, provided, however, the numerator shall not be less than zero. For taxable years beginning after nineteen hundred ninety-nine, the numerator of such fraction shall be the lesser of (i) fifteen thousand dollars or (ii) sixty-five thousand dollars less the New York adjusted gross income for the taxable year, provided, however, the numerator shall not be less than zero. The denominator of such fraction shall be four thousand dollars for taxable years beginning in nineteen hundred ninety-six and nineteen hundred ninetyseven, thirteen thousand dollars for the taxable year beginning in nineteen hundred ninety-eight, and fifteen thousand dollars for taxable years beginning after nineteen hundred ninety-eight. The multiplier shall be ten percent for taxable years beginning in nineteen hundred ninety-six, forty percent for taxable years beginning in nineteen hundred ninety-seven, and eighty percent for taxable years beginning after nineteen hundred ninety-seven. Provided, however, for taxable years beginning after nineteen hundred ninety-nine, for a person whose New York adjusted gross income is less than forty thousand dollars, such applicable percentage shall be equal to (i) one hundred percent, plus (ii) ten percent multiplied by a fraction whose numerator shall be the lesser of (i) fifteen thousand dollars or (ii) forty thousand dollars less the New York adjusted gross income for the taxable year, provided such numerator shall not be less than zero, and whose denominator shall be fifteen thousand dollars. Provided, further, that if the reversion event, as defined in this paragraph, occurs, the applicable percentage shall, for taxable years ending on or after the date on which the reversion event occurred, be determined using the rules specified in this paragraph applicable to taxable years beginning in nineteen hundred ninety-nine. The reversion event shall be deemed to have occurred on the date on which federal action, including but not limited to, administrative, statutory or regulatory changes, materially reduces or eliminates New York state's allocation of the federal temporary assistance for needy families block grant, or materially reduces the ability of the state to spend federal temporary assistance for needy families block grant funds for the credit for certain household and dependent care services necessary for gainful employment or to apply state general fund spending on the credit for certain household and dependent care services necessary for gainful employment toward the temporary assistance for needy families block grant maintenance of effort requirement, and the commissioner of the office of temporary and disability assistance shall certify the date of such event to the commissioner, the director of the division of the budget, the speaker of the assembly and the temporary president of the senate.

§ 2. Section 606 of the tax law is amended by adding a new subsection (c-2) to read as follows:

(c-2) New York state child and dependent care credit. (1) For taxable years beginning on or after January first, two thousand twenty-six, an eligible taxpayer shall be allowed a credit as provided herein to enable the eligible taxpayer to be gainfully employed or a full-time student at an educational institution for any period of the taxable year. If the amount of the credit allowed under this subsection for any taxable year shall exceed the eligible taxpayer's tax for such year, the excess shall be treated as an overpayment of tax to be credited or refunded in accordance with the provisions of six hundred eighty-six of this article, provided, however, that no interest shall be paid thereon.

(2) For the purposes of this subsection:

(A) "Eligible taxpayer" shall mean a resident individual as defined in paragraph one of subsection (b) of section six hundred five of this article who, during the taxable year: (i) is not a dependent of another taxpayer pursuant to section one hundred fifty-two of the internal revenue code; and (ii) is not a resident married individual filing a separate return unless such individual meets the conditions in paragraph four of subdivision (e) of section twenty-one of the internal revenue code. Provided, however, where married individuals file a joint federal return, but are required to determine their New York taxes separately pursuant to subsection (b) of section six hundred fifty-one of this article, the credit allowed pursuant to this subsection may only be applied against the tax imposed on the spouse with the lower New York adjusted gross income.

(B) "Qualifying individual" shall mean an individual who: (i) is under the age of thirteen at the close of the taxable year or is physically or mentally incapable of caring for themselves during the taxable year; (ii) resides with the eligible taxpayer for more than one-half of the taxable year; and (iii) is claimed as a dependent pursuant to section one hundred fifty-two of the internal revenue code, or could otherwise be claimed as a dependent. Provided, a qualifying individual shall also include an individual where a noncustodial parent claims such individual under subsection (e) of section one hundred fifty-two of the internal revenue code or the individual is the eligible taxpayer's spouse who is physically or mentally incapable of caring for themselves during the taxable year and resides with the eligible taxpayer for more than onehalf of the taxable year.

(C) "Earned income" shall mean the wages, salaries, tips and other employee compensation, and those items of gross income which are includible in the computation of net earnings from self-employment.

(D) (i) "Qualifying expenses" shall mean the sum of the amount incurred and paid in the taxable year directly by an eligible taxpayer for: a. services provided in and about the eligible taxpayer's residence to provide care for any qualifying individual, including such expenses for the room and board of any such caregiver; and b. non-overnight services provided outside of the eligible taxpayer's residence to provide care for any qualifying individual; provided, however, that amounts incurred or paid for which the primary purpose is educational shall not be included.

(ii) Provided, however, "qualifying expenses" shall not include: a. any amounts paid whereby the taxpayer receives reimbursement or are paid from funds provided by a government entity, dependent care account, or other third party; b. any amounts paid to a dependent of the taxpayer for which the taxpayer or the taxpayer's spouse is entitled to a deduction for the taxable year under subsection (c) of section one hundred fifty-one of the internal revenue code; or c. any amounts paid to a child of the taxpayer as defined in paragraph one of subsection (f) of section one hundred fifty-two of the internal revenue code who has not attained the age of nineteen at the close of the taxable year.

(iii) For the purposes of the credit provided pursuant to this subsection, an eligible taxpayer's qualifying expenses shall not exceed:

a. three thousand dollars, in the case of an eligible taxpayer with one qualifying individual;

b. six thousand dollars, in the case of an eligible taxpayer with two qualifying individuals;

c. seven thousand five hundred dollars, in the case of an eligible taxpayer with three qualifying individuals;

d. eight thousand five hundred dollars, in the case of an eligible taxpayer with four qualifying individuals; and

e. nine thousand dollars, in the case of an eligible taxpayer with five or more qualifying individuals.

Provided, further, that an eligible taxpayer's qualifying expenses shall not exceed such eligible taxpayer's earned income as defined in subparagraph (C) of this paragraph, or in the case of a married eligible taxpayer filing a joint return, the lesser of the earned income of each spouse determined separately.

(E) "Applicable percentage" shall mean: (i) fifty-five percent in the case of an eligible taxpayer with a New York adjusted gross income determined pursuant to section six hundred twelve of this article of fifteen thousand dollars or less; or (ii) fifty-five percent reduced by twenty-five hundred thousandths of a percentage point for each dollar of an eligible taxpayer's New York adjusted gross income determined pursuant to section six hundred twelve of this article in excess of fifteen thousand dollars. Provided, however, that the applicable percentage for an eligible taxpayer shall not be reduced below four percent.

(3) The amount of the credit allowed to an eligible taxpayer under this subsection shall be the product of the eligible taxpayer's qualifying expenses determined pursuant to subparagraph (D) of paragraph two of this subsection and the applicable percentage determined pursuant to subparagraph (E) of paragraph two of this subsection. Provided, however, the credit allowed under this subsection shall be reduced by twenty dollars for each one thousand dollars by which the eligible taxpayer's New York adjusted gross income determined pursuant to section six hundred twelve of this article exceeds seven hundred fifty thousand dollars.

(4) To be eligible for the credit provided by this subsection, an eligible taxpayer shall provide the following information to the satisfaction of the commissioner: (i) the amount of qualifying expenses; (ii) identifying information related to the care provider; (iii) identifying information related to the qualifying individual for whom the expenses were incurred; and (iv) any other information as required.

(5) Any references to the internal revenue code in this subsection shall be to the internal revenue code as it existed prior to January first, two thousand twenty-five.

§ 3. Paragraph 3 of subsection (e) of section 697 of the tax law, as amended by chapter 284 of the laws of 2016, is amended to read as follows: