Filing and paying are two separate acts
You decide filing and paying separately, on two different numbers, and a business can file a return and owe nothing.
Key takeaways
File at more than $95,000 gross
You file where your total gross income from every business you run, wherever you run it, is more than $95,000 before any deduction for cost of goods sold. Partnerships file on the same figure.
4 percent, and a credit that erases small bills
You pay 4 percent of the business income you allocate to the City, and you claim a credit that wipes out the tax where it comes to $3,400 or less.
Find out which side of both tests you are on
Send us last year's figures and we will tell you whether you file, whether you pay, and what the credit does to the number. Call (212) 641-0673 or use the contact form. We come back within 24 hours, and we are available evenings and weekends. Confidential, and handled by a CPA or EA, not a call center.
How the UBT works
The tax on business income the City has not already taxed
New York City charges the NYC unincorporated business tax on business income that no entity has already paid City tax on. A corporation pays City tax before its owners do. A partnership or a sole proprietor does not.
So the first question is what you are, and the second is how much you earn.
01Who pays
Who pays the unincorporated business tax
You are in the tax where you carry on a trade, business, profession or occupation wholly or partly within New York City and you are not a corporation.
Sole proprietors
Sole proprietors, including freelancers and consultants filing a Schedule C.
Partnerships
Partnerships, including general and limited partnerships.
LLCs not taxed as corporations
Limited liability companies that are not taxed as corporations, whether single member or multi member.
Estates and trusts
Estates and trusts that carry on a business. They file Form NYC-202EIN rather than NYC-202.
Professional practices pay the unincorporated business tax
New York City taxes income from the practice of law, medicine, dentistry, architecture and any other profession.
An accounting practice, an engineering firm, a medical group or a consulting shop pays the tax where it operates as a partnership or an LLC. New York City grants no professional exemption.
Two related points a practice usually asks about:
You cannot deduct what you pay your partners.New York City disallows deductions for amounts paid to a proprietor or partner for services or for the use of capital. It allows one capped statutory exception, and you take that after allocation rather than before.
Trading for your own account is a different exemption.New York City gives it to the entity doing the trading, so funds and family offices claim it and practices do not. An entity qualifies where it is primarily engaged in that trading; an individual only where solely engaged. A manager paid fees to trade for someone else is inside the tax, and the City audits that line hard.
Where you do the work, not where your clients are
You carry on business in the City where you do the work here, whatever address your clients have. A Brooklyn based consultant with clients across the country is inside the tax.
You are inside it if you have any one of these in the City:
- an office
- employees
- regular business activity
02The base
Which share of your income New York City taxes
New York City charges the 4 percent on a much smaller number than your revenue. It takes your gross income, subtracts your deductions, allocates what is left between the City and elsewhere, then subtracts the allowance for partners’ services and the unincorporated business exemption. The City charges the 4 percent on what remains.
No rule fixes you at 100 percent.New York City repealed the requirement to keep a regular place of business outside the City for tax years beginning after June 30, 1996. You still carry the burden of showing where your receipts came from, and the City can adjust an allocation that does not reflect what you did. Without records you have nothing to adjust down from.
You source services and goods differently.You allocate a sale of tangible property to the City where you ship it to a point in the City. You allocate a service by the office or personnel that performed the work or sent it out. For tax years beginning on or after January 1, 2018 the City uses receipts as the only allocation factor.
Ten points of allocation, in money.At 4 percent, you pay another 0.4 percent of your allocated base for every ten points you cannot evidence. At the small end you claim the business tax credit against it and pay nothing.
We work out your allocation from your own records before we file anything, and we tell you what to record from here so next year's is easier to support.
03Who is out
Who does not pay NYC UBT
You are outside the tax in three cases.
Corporations
S corporations pay the general corporation tax and C corporations pay the business corporation tax. Neither pays the unincorporated business tax, and your S corporation does not owe it.
Employees
You are not carrying on a trade or business when you perform services as an employee, whatever your contract calls the arrangement.
Property held for your own account
You are outside the tax where you own, lease or manage real property for your own account, and where you trade securities for your own account within limits. The exemption is worth real money and it has its own page.
04Two tests
Filing and paying are two different tests
You test filing on one number and paying on another.
The filing test
Gross income > $95,000
Your total gross income from every business you run, wherever you run it, before any deduction for cost of goods sold or services performed. Partnerships file on the same figure.
The paying test
4% of allocated business income
What you have left after your expenses and after the allocation to New York City. The credit then wipes out the tax at $3,400 or less and phases out by $5,400.
You test filing on your total gross income from every business you run, wherever you run it, before any deduction for cost of goods sold or services performed. You do not deduct your expenses before applying that test, so a high revenue business on thin margins files while a smaller one on fat margins does not.
Partnerships file on the same $95,000. The City applies the same test and the same figure to partnerships, LLPs and multi member LLCs on Form NYC-204.
You pay on a much smaller number. New York City charges 4 percent of your unincorporated business taxable income allocated to the City, which is what you have left after your expenses and after the allocation.
You then claim a credit against that tax:
The unincorporated business tax credit against the 4 percent
How the credit lands
Tax of $3,400 or less
You claim the whole amount and pay nothing.
Tax between $3,400 and $5,400
You claim part of it.
Tax of $5,400 or more
You claim nothing.
So you file a return and pay tax as two separate acts. Where the City writes about a missing return, it wants the return first.
One route out exists. Where every activity you carry on is one New York City exempts, you file nothing at all. Test the property-held-for-your-own-account question first.
05What people get wrong
The City taxes your two businesses as one
What people get wrong
Two ventures at $60,000 each are one business at $120,000
The belief.Carry on two or more unincorporated businesses, wholly or partly in the City, and the City treats them as one business on one return.
What is true.If you carry on two or more unincorporated businesses, wholly or partly in the City, they are treated as one and reported on a single return. But a partner carrying on a separate business of their own does not fold in their distributive share.
Why it costs money.Two ventures at $60,000 each are one business at $120,000, which is over the line. The City does not write to warn you that a return has fallen due.
06The resident credit
The credit City residents claim against personal income tax
A resident who pays the unincorporated business tax can claim a credit against their New York City personal income tax for what they paid, within limits. For lower income residents it can behave like a prepayment. Higher up, the offset is partial and the tax is a real cost.
You claim it on Form IT-219, filed with your New York State return, and it is a different credit from the one inside the UBT itself. You cannot refund it or carry it forward, and a partner claims it on their allocated share, so the K-1 has to carry the figure.
07Which form
Which UBT form you file
NYC-202.You file as an individual or a single member LLC using a Social Security number.
NYC-204.You file as a partnership, LLP or multi member LLC.
NYC-202EIN.You file as an estate or trust. Short forms exist for smaller filers.
Payment is annual, with estimated payments during the year once the liability is large enough to require them.
08Related
We answer these on other pages
Three questions have their own pages: what the credit does to your number, whether real estate held for your own account is exempt, and what you can do about the exposure.
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Check whether the two businesses combine
If you run more than one thing, the threshold test is not what you think it is, and that is how people end up filing late. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Two tests, one call
Find out whether you file, whether you pay, and what the credit does
Send us last year’s figures and we will tell you which side of the $95,000 filing test you are on, what 4 percent of your allocated income would be, and where the credit lands. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising businesses on New York City and New York State tax. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.