How Does New York Make Money? Taxes, Federal Aid, and Bonds

New York State brought in $114.1 billion in state-imposed taxes and fees during fiscal year 2024–2025, and that is only part of the picture.¹ To understand how New York makes money, you have to look at five main streams: personal income tax, sales and excise taxes, business taxes, federal grants, and a mix of gaming revenue, fees, tolls, and borrowing. Together they support an enacted state budget of $254.3 billion for SFY 2025–2026, covering schools, Medicaid, transportation, prisons, and everything in between.²

Personal Income Tax Is the Largest Source

Personal income tax pulled in $61.2 billion in fiscal year 2024–2025, more than half of all state tax collections.¹ The state uses a progressive system with nine brackets. Rates start at 4% on the first $8,500 of taxable income for a single filer and climb to 10.9% on income above $25 million. Most of the money reaches Albany through paycheck withholding; self-employed workers and people with substantial investment income send quarterly estimated payments.

The residency rules are broad. If you live in New York, the state taxes what you earn anywhere in the world. If you live elsewhere but earn New York source income, that income is taxed here too. And if your permanent home is somewhere else but you keep a place to live in New York and spend 184 or more days in the state during the year, you can be treated as a New York resident for tax purposes. Any part of a day counts as a full day, and you do not have to sleep at your New York address for the day to count.³ That rule catches many people who split time between New York and states like Florida or Connecticut.

Revenue is heavily concentrated at the top. Filers with $1 million or more in New York source income are less than 1% of returns but pay roughly 45% of the total personal income tax.⁴ That gives the state enormous revenue in strong markets and makes collections volatile when Wall Street bonuses and capital gains fall.

Sales and Excise Taxes

Sales and excise taxes generated $21.1 billion in fiscal year 2024–2025.¹ The state charges a 4% sales tax on most retail goods and certain services, including restaurant meals and hotel stays.⁵ Cities and counties layer their own sales taxes on top, so the combined rate typically falls between 7% and 8.875%. New York City hits the ceiling. Groceries, prescription drugs, and most clothing under $110 per item are exempt.

A compensating use tax closes the obvious loophole. Buy something out of state and bring it into New York for use here, and you owe the same tax you would have paid locally.⁵ Online purchases became far easier to tax once New York began requiring marketplaces to collect. Any platform that facilitates more than $500,000 in New York sales and more than 100 transactions in a year must register as a vendor and remit the tax on behalf of its sellers.⁶

Excise taxes on specific products add another layer. Cigarettes carry a $5.35-per-pack state excise, one of the highest in the country. Alcohol is taxed per gallon, with separate rates for beer, wine, and liquor.⁷ Motor fuel is subject to both a per-gallon excise and a cents-per-gallon sales tax calculation. Adult-use cannabis is taxed at the state level as well, with separate rates on wholesale and retail transactions.

Business and Corporate Taxes

Business taxes brought in $29 billion in fiscal year 2024–2025.¹ The corporate franchise tax under Article 9-A is the centerpiece. Every domestic or foreign corporation doing business in New York, maintaining an office here, or earning receipts from activity in the state owes an annual tax.⁸ The standard rate is 6.5% of a corporation’s business income base. Corporations with a business income base above $5 million pay 7.25% for tax years through 2026, after which the rate is scheduled to revert to 6.5%.⁹ Qualified New York manufacturers pay 0%. Insurance companies and utilities are taxed under separate articles. A company with no physical office in the state but significant New York customers can still owe franchise tax based on its sales here.

Metropolitan Commuter Transportation Mobility Tax

Employers in the downstate region face an additional payroll-based levy that funds mass transit. The MCTMT applies to any employer required to withhold state income tax that has more than $312,500 in quarterly payroll for covered employees in the region. In New York City’s five boroughs (Zone 1), the top rate is 0.895% on payroll above $2.5 million per quarter. In surrounding suburban counties (Zone 2), the top rate is 0.635%.¹⁰ Self-employed individuals earning above a threshold in the region owe the tax too.

Pass-Through Entity Tax

Since 2021, partnerships and S corporations have been able to elect into the pass-through entity tax under Article 24-A. The PTET was designed as a workaround for the federal $10,000 cap on state and local tax deductions. When a business elects in, the entity itself pays the state income tax, and its owners claim a corresponding credit on their personal returns.¹¹ Adoption has been widespread among higher-income business owners, making PTET a meaningful part of how income tax revenue reaches the state.

Real Estate Transfer and Estate Taxes

Property transfer taxes generated $2.6 billion in fiscal year 2024–2025.¹ Every time real property changes hands for more than $500, the state charges $2 for each $500 of the sale price. On a $500,000 home sale, that is $2,000. An additional 1% mansion tax kicks in on residential purchases of $1 million or more.¹² In New York City, a separate supplemental tax adds more for high-value transactions.

New York also imposes its own estate tax, separate from the federal one. For anyone who dies in 2026, the basic exclusion amount is $7,350,000. Estates below that threshold owe no state estate tax.¹³ New York’s “cliff” is harsh: if the estate exceeds 105% of the exclusion, the entire exemption vanishes and the full estate is taxed from dollar one. For 2026, that cliff sits at roughly $7,717,500. The top estate tax rate is 16%. Nonresidents who own real or tangible personal property located in New York must also file if their total estate exceeds the exclusion amount.

Federal Funding Is the Largest Inflow Overall

Federal transfers dwarf any individual state tax. Federal grants to New York’s state and local governments totaled roughly $111 billion in federal fiscal year 2023. Medicaid alone accounts for close to 58% of that total. Because New York has a relatively high per capita income, its Federal Medical Assistance Percentage sits at the floor of 50%, meaning the federal government reimburses the state for half of its Medicaid spending.¹⁴ Education, highway maintenance, nutritional assistance, and housing all receive substantial federal grants as well. These dollars come with strings attached and cannot legally be redirected to fill holes elsewhere in the state budget.

Lottery and Sports Betting

The New York Lottery is the largest and most profitable lottery in North America. It contributed $3.6 billion to public education in fiscal year 2024–2025 and has sent more than $89.7 billion to New York public schools since it began in 1967.¹⁵ Lottery revenue is distributed to school districts using the statutory formula that governs other state education aid, so it supplements rather than replaces regular school funding.

Mobile sports betting launched in January 2022 and became a major revenue stream almost immediately. New York taxes online sportsbook revenues at 51%, one of the highest rates in the country. In calendar year 2025, that tax generated roughly $1.3 billion for education, bringing the cumulative total since launch to nearly $4 billion. The state also collects from commercial casinos, video lottery terminals at racetracks, and tribal gaming compacts, though those amounts are considerably smaller.

Fees, Tolls, and Other Non-Tax Revenue

Dozens of smaller streams round out the picture. Motor vehicle registration fees run from $26 for the lightest passenger cars to $81 for the heaviest, plus supplemental fees that vary by county.¹⁶ Professional licensing fees from physicians, attorneys, real estate agents, and other regulated occupations provide steady income. Tuition from the State University of New York and City University systems is a significant internal source, and fines from traffic violations and legal penalties add more.

Manhattan’s congestion pricing program, which began in January 2025, charges a $9 peak-period toll for passenger vehicles entering at or below 60th Street and $2.25 overnight.¹⁷ Congestion pricing revenue flows to the MTA rather than the state’s general fund, but it funds transit capital improvements the state would otherwise have to support through other means.

Borrowing Through State Bonds

Not all state spending comes from current-year revenue. New York borrows through bond issuances to finance large capital projects like new transit infrastructure, environmental improvements, and university facilities. As of March 2025, the state had roughly $2.27 billion in general obligation debt outstanding.¹⁸ Strong credit ratings from the major agencies keep borrowing costs relatively low. Debt service consumes a portion of the annual budget, and constitutional and statutory debt caps limit how much the state can borrow relative to personal income.

1
Department of Taxation and Finance. Fiscal Year Tax Collections 2024-2025
2
New York State Assembly. Assembly Announces Enacted SFY 2025-26 Budget
3
Department of Taxation and Finance. Frequently Asked Questions About Filing Requirements, Residency, and Telecommuting
4
Department of Taxation and Finance. Personal Income Tax Facts
5
Tax.NY.Gov. Publication 750 A Guide to Sales Tax in New York State
6
Tax.NY.gov. Sales Tax Requirements for Marketplace Providers
7
Department of Taxation and Finance. Alcoholic Beverages Tax
8
New York State Senate. New York Tax Law 209 – Imposition of Tax Exemptions
9
New York State Senate. New York Tax Law 210
10
Department of Taxation and Finance. Employers Metropolitan Commuter Transportation Mobility Tax
11
Department of Taxation and Finance. Pass-Through Entity Tax
12
Tax.NY.Gov. Real Estate Transfer Tax
13
Department of Taxation and Finance. Estate Tax
14
Office of the New York State Comptroller. New Yorks Balance of Payments in the Federal Budget Federal Fiscal Year 2023
15
New York Lottery. Aid to Education
16
Department of Motor Vehicles. Passenger Vehicle Registration Fees, Use Taxes and Supplemental Fees
17
MTA. Congestion Pricing Program in New York – Tolling
18
New York State Division of the Budget. Bond Caps and Debt Outstanding