Key figures
New York payables
2026, with sources
Contractors: contracts and reporting
New York regulates freelance relationships more than most states. The statewide Freelance Isn’t Free Act, added to the General Business Law in August 2024, sets contract requirements and an enforcement process through the Attorney General. New York City’s own law requires a written contract for engagements worth $800 or more, counting all agreements with the same freelancer in any 120-day period, stating the work, the pay and the pay date. Both the company and the freelancer keep a copy.
New York also asks for contractors at the front end. Since January 1, 2022, employers must report individuals under an independent contractor arrangement with contracts over $2,500 through new-hire reporting, alongside employees. A startup that brings on a $6,000-a-month design contractor in Brooklyn therefore has two filings before the first invoice: a written contract and a new-hire report.
New York is not one of the states in the IRS Combined Federal/State Filing program, so a 1099-NEC filed with the IRS is not forwarded to New York by that route.
Use tax on what you buy
Because New York taxes prewritten software however it is delivered, including by remote access, SaaS subscriptions a startup buys are taxable purchases. When the vendor is out of state and does not collect New York tax, the company owes use tax at the combined rate where it uses the software: 8.875% in New York City. A company registered for sales tax reports use tax on its sales tax return; one that is not registered reports it separately.
For a ten-person company with $150,000 a year of tooling from vendors that don’t collect, that is about $13,000 of tax a year that accrues whether or not anyone records it, and that is exactly what a sales tax audit looks for. An accounts payable process that flags untaxed software invoices is the cheap fix.
Stale vendor checks
Uncashed vendor checks become reportable to the State Comptroller after three years of dormancy. A company that writes off old outstanding checks to income during a bank reconciliation, instead of tracking them, is building an unclaimed funds liability; the general corporations report is due March 10.
The federal baseline
This page covers what New York adds. The federal rules underneath it apply here too.
Common questions
Do we have to report contractors to New York?
Yes, if the contract is over $2,500. Since January 1, 2022, New York has required employers to report individuals working under an independent contractor arrangement with contracts in excess of $2,500, through the same new-hire reporting channel used for employees.
Our software vendor didn’t charge New York sales tax. Are we done?
Use tax. When an out-of-state vendor sells you prewritten software and does not charge New York sales tax, the tax is still owed, at the rate where the software is used. A registered vendor reports it on its sales tax return; a business that is not registered reports it on its own.
Do we need a written contract with a New York freelancer?
In New York City, yes, once the work is worth $800 or more, counting everything you agree with the same freelancer over 120 days. The contract has to name the work, the pay and the date you will pay, and payment is due by that date or, if none is set, within 30 days of completion. The statewide Freelance Isn’t Free Act sets similar requirements outside the city.
Payables next door
- CTConnecticut payablesConnecticut wants its own copy of every 1099-NEC for Connecticut work by January 31. Software bought for business use owes 1% use tax when the vendor doesn’t charge it.
- MAMassachusetts payablesMassachusetts wants 1099s filed directly with DOR, applies a strict ABC test to contractors, and taxes the SaaS a startup buys at 6.25% when the vendor doesn’t collect.
- NJNew Jersey payablesNew Jersey classifies workers with the ABC test, wants contractors reported like new hires, and wants 1099s of $1,000 or more filed electronically by February 15.
- PAPennsylvania payablesPennsylvania wants 1099s by January 31 and 3.07% withheld from Pennsylvania-source payments of $5,000 or more to nonresident contractors. Because SaaS is taxable, use tax on software is a real payables item.
- VTVermont payablesVermont takes 1099s with Form WHT-434 by January 31, outside the IRS combined program. Since July 2024 the software a startup buys is taxable, so untaxed SaaS owes use tax.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- The closeWhy startups should close their books every monthA monthly close turns a bank balance into numbers an investor, an auditor or a 409A firm will accept. What it is, and why it gets expensive to skip.
More of the New York guide
- AccountingAccounting and state tax in New YorkCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in New YorkSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in New YorkWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in New YorkRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in New YorkCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- IRS Publication 1220 — Combined Federal/State Filing participating states
- NYS Department of Taxation and Finance — New hire reporting
- NYC Department of Consumer and Worker Protection — Freelance workers
- NYS Department of Taxation and Finance — Computer software (TB-ST-128)
- NYS Office of the State Comptroller — Unclaimed funds reporting, general corporations
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.