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What New York’s 2026 Budget Means for Small Business Unemployment Costs

Surcharges ending, benefits increasing

Nys Budget Reform 25 (1)

New York State’s FY2026 budget includes a comprehensive overhaul of the Unemployment Insurance (UI) system that delivers immediate cost relief for employers while also setting the stage for longer-term structural changes. The state is using $8 billion to eliminate pandemic-related UI debt, which will remove the Interest Assessment Surcharge (IAS) and lead to lower UI contribution rates for many employers beginning in 2026. At the same time, the budget increases the maximum weekly UI benefit for workers, raises the taxable wage base starting in 2026, and introduces an indexing system that will automatically adjust the wage base each year beginning in 2027. While these changes aim to stabilize the system, they will also gradually shift more of the funding burden onto employers in future years.

Short-Term Relief

To wipe out the pandemic-era debt owed to the federal government, Governor Hochul and state lawmakers have committed $8 billion in state reserves to pay off the UI Trust Fund’s remaining balance. This move brings immediate relief in two ways:

  • The Interest Assessment Surcharge (IAS) will be eliminated.
  • As the fund becomes solvent, UI tax rates for employers should begin to fall.

These changes offer a welcome break for small businesses that have seen elevated unemployment costs since 2021. That said, individual savings will still depend on each employer’s UI rate, which is tied to claims history and other factors.

What’s Changing and When

  • October 2025: The maximum weekly UI benefit increases from $504 to $869 — the first hike since 2019.
  • January 1, 2026: The taxable wage base rises slightly from $12,800 to $13,000.
  • January 1, 2027 and beyond: The taxable wage base will adjust annually to 16% of the New York State Average Annual Wage, rounded to the nearest $100. Based on projections of the Average Annual Wage from years past, employers should expect a significant increase from 2026 to 2027, with smaller annual adjustments thereafter.

This indexing system is intended to strengthen the Trust Fund over time — but it also means employers will be paying UI tax on a steadily growing portion of each employee’s wages.

Long-Term Considerations

While the 2026 budget reduces UI costs in the short term, it also lays the foundation for more permanent changes, some of which may increase costs for employers in the years ahead.

  • As the wage base increases each year, even lower tax rates could apply to a larger pool of wages, potentially increasing total liability per employee.
  • The increase in maximum benefit amounts will mean more money is paid out of the system. Over time, that can impact employer experience ratings and potentially push rates upward for those with more frequent claims.

Simply put, the state’s goal is to strengthen and better fund the UI system — but this will gradually place a greater share of the financial burden on employers.

What This Means for HR One Clients

 Total UI Cost Per Employee 2024-2027  

(Click the image to enlarge)
This chart shows UI costs per employee based on various tax rates. 2.1% is the lowest rate available, 4.1% is the new employer rate, and 9.9% is the highest rate. Most employers pay between the lowest and new employer rate.

Please note that wages for some part-time and seasonal employees will be below the wage base and so the cost per employee for those individuals could be lower.

  

If your business has been burdened by UI taxes since the pandemic, this budget delivers meaningful short-term relief by doing away with the IAS and lowering rates. But it also marks the beginning of a shift: lower rates will be paired with higher taxable wages, and the rising benefit cap will make every claim more expensive.

Now is a good time to review your current UI rate and claim history. While unemployment costs remain manageable, there are steps employers should be taking to keep costs down, including:

  • Submitting your quarterly payments on time to avoid late fees.
  • Reviewing notices of benefit entitlement and payments.
  • Considering shared work or reduced hours as alternatives to layoffs.
  • Protesting charges if you think employees should be ineligible to collect (thorough documentation is key to a successful protest).
  • Reporting fraudulent charges.
  • Having an outsourcing program for claims management.

Conclusion

This is a step toward stability, but not a return to pre-pandemic norms.  Businesses should budget accordingly, anticipating a UI system that places increased expectations on employers to ensure long-term solvency and reliability for workers.

If you have questions about your UI rate and how you can take steps to reduce it, call Deb Hague, our Unemployment Manager at (315) 463-0004 ext. 303. Just have your most recent NYS UI rate notice or quarterly statement on hand, and she can walk you through what the numbers mean and what steps you can take to stay ahead of future cost increases.