New York has announced penalty and interest relief for taxpayers' amended returns reflecting retroactive federal decoupling adjustments for tax years beginning 1 January 2025 or later, through the 2026–2027 budget bill (S.9009-C) and Department of Taxation and Finance Notice N-26-1 issued 16 June 2026, though relief only extends to filings that exclusively report the required modifications.
New York will offer targeted tax penalty and interest relief to taxpayers impacted by its retroactive decoupling from certain federal changes introduced under the OBBBA, as outlined in Important Notice N-26-1 issued by the New York State Department of Taxation and Finance on 16 June 2026. The relief applies to taxpayers who timely file or amend their 2025 tax returns to reflect the required New York adjustments.
The relief, introduced through New York’s 2026–2027 budget legislation (S.9009-C/A.10009-C), applies in specific cases where a taxpayer’s additional liability results exclusively from the retroactive decoupling adjustments for tax years beginning on or after 1 January 2025.
This New York State budget bill proposes a series of significant amendments to tax laws and administrative codes for the 2026-2027 fiscal year. A major focus is the restructuring of child and dependent care credits, transitioning to a new state-specific system that provides refundable tax relief based on income and qualifying expenses. The legislation also introduces tax exclusions for earned tips, extends current corporate tax rates, and maintains deductions for charitable contributions made to specific organisations.
The key provisions are as follows:
New York State tax reliefÂ
Under Part F of the legislation, which applies to state tax years beginning on or after 1 January 2025, no interest or penalty will accrue on returns filed under a valid extension, provided they are filed within the granted extension period. Furthermore, this relief applies to amended returns filed for taxable years beginning on or after 1 January 2025 and before 1 January 2026.
However, this safe harbour is extremely narrow: it applies only if the return solely reports the modifications required by this act. If a taxpayer amends a return to report these decoupling modifications but also includes unrelated adjustments or corrections, they may forfeit the penalty and interest protections for that filing. As you noted, this relief only waives the penalties and interest; it does not eliminate or reduce the underlying tax liability generated by the decoupling.
New York City tax reliefÂ
Part G of the legislation provides identical relief for New York City purposes. For taxable years beginning after 31 December 2024, no interest or penalty will accrue on returns filed under a valid extension or on amended returns filed for taxable years beginning after 31 December 2024 and before 1 January 2026.
Strict limitations on the relief
The legislation mandates that to qualify for this protection against penalties and interest, the returns must solely report the modifications required by this act. Based on the text, these modifications primarily involve decoupling from federal deductions under the Internal Revenue Code, such as those related to the depreciation of qualified production property and the amortisation of domestic and foreign research or experimental expenditures.
The relief applies only to eligible filings involving required decoupling adjustments for tax years before 1 January 2026 and does not reduce the underlying tax liability. It protects qualifying taxpayers from additional penalties and interest, while the correct New York tax must still be calculated and paid. Requests for penalty waivers can be submitted through the New York Tax Professional Online Services account.
