New York State Budget Labor

New York Will Boost Unemployment Benefits, Labor and Businesses Celebrate

The state will spend $8 billion to pay off its debt to the feds and increase unemployment benefits for the first time in six years.

Julia Rock · May 8, 2025

The budget agreement will increase weekly benefits from a maximum of $504 to a maximum of $869, with more increases in future years. | Myshkovsky / Getty Images; Office of Governor Kathy Hochul | Illustration: Leor Stylar

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Labor unions and business lobbyists successfully convinced Governor Kathy Hochul to pay off New York’s $6.2 billion unemployment insurance debt — and boost unemployment benefits for the first time in six years — as part of her final budget agreement with the state legislature.

New York owed the money after borrowing from the federal government to cover pandemic-era unemployment claims. The state has been repaying the debt since then, through higher taxes on businesses, but was still years away from being in the black.

The New York State Department of Labor office in Brooklyn, New York.

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State law requires that unemployment benefits remain frozen when the system is in debt, so weekly unemployment benefits have since 2019 been capped at $504, a lower benefit than neighboring states provide and less than a full-time minimum wage salary. The budget agreement will increase weekly benefits to a maximum of $869 this year, with more increases in future years.

“On the business side, this is a huge victory” since employers will no longer face additional taxes to pay off the debt, said Assembly Labor Committee Chair Harry Bronson, who had been advocating for the plan. “On the worker side, this is a huge victory,” because the weekly benefit will increase, he said.

The state will use $8 billion of its reserves to pay off the debt and add to the unemployment trust so that it can pay out claims without going back into debt.

The Assembly first proposed the measure in March after Hochul’s executive budget in January failed to address the issue. The New York AFL-CIO, a statewide federation of labor unions, and corporate lobbying groups like the Business Council pushed for its inclusion in the final budget.

“We weren’t getting a lot of support … from the governor at all up until last week,” said Bronson. He said that organized labor and business lobbyists “did a full court press over the weekend, and ultimately the governor agreed with us.”

The AFL-CIO and Business Council lauded the changes in statements Thursday.

The final deal also includes a small increase, beginning in 2026, to the payroll tax that funds the unemployment system. Under current law, employers are taxed on the first $12,800 of an employee’s wages.

Economists say there are a couple of problems with the current financing structure. First, taxing such a small portion of wages means that low-wage employers end up paying a higher tax rate than high-wage employers. That tends to help the finance and tech industries and hurt small businesses. Second, the state does not tax employers enough to fully fund the system, which means it ends up having to borrow money from the federal government and freeze worker benefits during economic downturns. New York’s system has been underfunded for decades, according to the federal Department of Labor and policy experts.

The final deal will increase the amount of taxable wages by roughly $5,000 in the first year. That’s not nearly enough to fully fund the system, according to three economic policy experts interviewed by New York Focus.

“This is such a minor adjustment to the financing that it doesn’t fix the insolvency,” said James Parrott, the director of economic and fiscal policy at the Center for New York City Affairs at the New School.

DOL Commissioner Roberta Reardon (red jacket, left) with Governor Kathy Hochul at a Women's Equality Day event in Albany on August 26, 2022.

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Parrott and others argue that if the state was going to bail out employers by using public money to pay off the debt, it should have required them to pay more into the system to ensure that it doesn’t need another bailout after the next recession.

“This was a tremendous missed opportunity to radically improve the financing structure,” Parrott said.

Nathan Gusdorf, executive director of the liberal think tank Fiscal Policy Institute, said that the budget had done a “good job” by paying off the debt and raising the benefit level. But there’s still some risk.

“Given the likelihood of a recession triggered by federal tariffs, there’s a serious risk of future benefit freezes and solvency challenges,” he said. “At some point in the future, the governor and the legislature will need to address unemployment insurance tax reform.”