New York ECEP: Elect by December 1 for 2027

New York employers have a decision to make before December 1, 2026. That is the deadline to opt in to the Employer Compensation Expense Program (ECEP) for calendar year 2027. The program is optional, it is not automatic, and once you are in, getting out is difficult. Here is how it works, what it costs, and how to decide whether it belongs in your 2027 payroll plan.

What ECEP Is

ECEP created an optional payroll tax called the Employer Compensation Expense Tax (ECET). An employer that elects in pays the ECET on New York payroll expense above $40,000 per employee for the calendar year. Employees of an electing employer may then claim the ECEP wage credit on their New York State income tax return. In short, the program shifts part of the state tax on higher wages from the employee to the employer.

The ECET rate was phased in over three years: 1½% for 2019, 3% for 2020, and 5% for 2021 and later years. A 2027 election means 5% on every covered dollar above the $40,000 threshold.

Which Wages and Employees Are Covered

Payroll expense generally means Medicare wages: wages and compensation subject to Social Security or railroad retirement tax, but with no annual wage cap. A highly paid employee's wages above the Social Security wage base still count.

The tax applies only to employees employed in New York State. The Tax Department uses the same tests it applies for the Metropolitan Commuter Transportation District, with New York State as the geographic area. An employee is covered if any one test is met:

• Localization: the employee works entirely in New York, or works outside the state only incidentally.
• Base of operations: the employee's base of operations is in New York.
• Direction and control: direction and control comes only from New York, and the employee performs some services in New York.

This matters for employers with remote teams. A California company with a handful of New York-based employees, or a New York company with staff spread across several states, should apply these tests employee by employee before running any numbers.

The Math: Employer Cost Versus Employee Credit

The employer side is simple. For an employee earning $100,000 of covered New York wages, the 2027 ECET is ($100,000 − $40,000) × 5% = $3,000. You begin remitting once an employee's wages pass $40,000 for the year. You may not deduct or withhold any part of the ECET from the employee's pay, and no tax credits can reduce the ECET you owe.

The employee side is where many owners are surprised. According to the Tax Department, the wage credit is figured in two steps:

• Multiply the employee's eligible wages and compensation by 5%.
• Multiply that result by the employee's New York State tax due before credits, divided by New York State taxable income.

The second step scales the credit to the employee's effective New York rate. Consider a hypothetical employee with $60,000 of wages subject to the ECET, $90,000 of New York taxable income, and $5,000 of New York State tax before credits. Step one gives $3,000. Step two gives $3,000 × ($5,000 ÷ $90,000), or about $167. The employer paid $3,000, and the employee's tax went down by roughly $167.

That gap is the core issue. Without other changes, ECEP is a significant added cost for the employer and only a modest benefit for the employee. The program was designed with compensation planning in mind, but any change to agreed pay raises employment law, contract, and employee relations questions that go well beyond tax. Get advice before you change anyone's compensation to fund an election.

The wage credit is nonrefundable. If it reduces an employee's New York State tax to zero, the unused amount may be carried forward to future years. Employees claim it on Form IT-226, filed with Form IT-201 or Form IT-203.

How and When to Elect

Enrollment for the next calendar year runs October 1 through December 1. To elect for 2027:

• Log in to your New York Business Online Services account.
• Open the Services menu, select Employment and withholding tax, then select ECEP Employer Election.
• Have the right person make the election: an authorized officer or manager for a corporation, or a member, owner, or other individual with authority to bind the entity for a partnership or sole proprietorship.

You must already be an active New York withholding tax filer. If you are not registered, register first. An election made after December 1 does not take effect until the second following calendar year, so a late election this year would not apply until 2028.

Filing, Payment, and Revocation Rules

Electing employers file quarterly ECET returns (Form EC-100) and make payments on the same schedule as withholding tax deposits. Quarterly returns are due April 30, July 31, October 31, and January 31. ECET returns and payments are separate from your withholding filings, everything must be done electronically, and there are no extensions. Late filing and late payment penalties and interest apply.

Once you elect, the election covers the whole year. You must pay the ECET on all covered employees and file all four quarterly returns. Revocation is allowed only if you have made no ECET payments, filed no ECET returns for that year, and mail a signed written request postmarked by January 15 of that year.

What to Tell Your Employees

The Tax Department encourages electing employers to:

• Tell employees that the company opted in to the ECET.
• Encourage covered employees to review Form IT-2104 and adjust their New York withholding.
• Tell covered employees, at year end, the amount of their wages subject to the ECET. The department provides a sample employer template for this.

Who Should Consider It

For most small businesses, the answer for 2027 will be to skip the election. ECEP may be worth modeling if you have several highly paid New York employees, you are already planning a compensation redesign, and you have legal counsel involved. Either way, the decision should be made on purpose before December 1, not by default.

For related planning, see our 2026 year-end tax planning checklist and our review of the 2026 SALT cap and PTET.

Sources

• NYS Department of Taxation and Finance: Employer Compensation Expense Program (ECEP)
• NYS Department of Taxation and Finance: ECEP Employer Election
• NYS Department of Taxation and Finance: Definitions for ECEP
• NYS Department of Taxation and Finance: Revoking the ECEP Employer Election
• NYS Department of Taxation and Finance: ECEP Wage Credit
• TSB-M-18(1)ECEP, Employer Compensation Expense Program

Key Takeaways

• The deadline to elect into New York's ECEP for 2027 is December 1, 2026. Participation is not automatic.
• Electing employers pay a 5% tax on each New York employee's payroll expense above $40,000.
• The employee wage credit is scaled to the employee's effective New York rate, so it is usually far smaller than the employer's cost.
• Revocation is possible only by January 15 and only before any ECET payment or return.
• Model the cost, check which employees are employed in New York, and involve counsel before changing compensation.

If you have New York employees and want to model ECEP before December 1, schedule a consultation with SMB CPA Group. You can also contact us, learn about our custom scope of work, or review our pricing.

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