The New York City Unincorporated Business Tax (UBT) applies to businesses operating within the city that are not structured as corporations, including sole proprietors, partnerships, and limited liability companies (LLCs). If you are a self-employed individual, part of a partnership, or a member of an LLC and your business generates income within NYC, you may be subject to the UBT. Below is an overview of who must pay this tax.
Sole Proprietors
If you operate a business as a sole proprietor in New York City, you are subject to the UBT. This tax applies to individuals who are self-employed and generate income from business activities within the city. Sole proprietors must file and pay the UBT based on their business income.
- The UBT applies to gross income from business activities, minus certain deductions.
- Sole proprietors must file Form NYC-202 and pay the UBT if their income exceeds a certain threshold.
Partnerships
Partnerships doing business in New York City are subject to the UBT, including general partnerships, limited partnerships, and limited liability partnerships (LLPs). If a partnership generates income in NYC, it must pay UBT on the gross income derived from city-based activities.
- The partnership itself must file Form NYC-202 on behalf of the business.
- The individual partners are responsible for paying taxes on their share of the partnership’s income, and they also must comply with other personal income tax obligations.
Limited Liability Companies (LLCs)
LLCs that are not taxed as corporations and are engaged in business activities in NYC are subject to the UBT. Like partnerships, LLCs with business income earned in New York City must pay UBT.
- If an LLC is treated as a pass-through entity (i.e., not taxed as a corporation), its members (owners) are responsible for paying the UBT on the LLC’s gross income.
- The LLC must file Form NYC-202, and members must report their share of the income on their personal returns.
Self-Employed Individuals and Freelancers
Freelancers and independent contractors who operate as sole proprietors or partnerships and conduct business in New York City are subject to the UBT. This includes individuals who offer services or run businesses without formal incorporation.
- Self-employed individuals who earn income from NYC-based clients or business activities must file the appropriate forms and pay the UBT if they meet the income thresholds.
Exemptions from the UBT
Certain businesses may be exempt from paying the UBT. These exemptions include:
- Personal services businesses: Businesses that provide personal services like medical, legal, accounting, and other professional services may not be subject to the UBT if they meet specific criteria.
- Certain small businesses: Small businesses that earn less than a certain amount may qualify for UBT exemptions or credits.
- Nonprofit organizations: Nonprofits that operate a business for profit may still be subject to the UBT, but many nonprofits are exempt from the tax if they meet the IRS’s criteria for tax-exempt status.
UBT Filing and Payment
Businesses subject to the UBT must file Form NYC-202, which reports their gross income and calculates the amount of tax owed. UBT is paid annually, but businesses may be required to make quarterly estimated tax payments if they expect to owe $1,000 or more in tax for the year.
The UBT rate is 4% of gross income derived from business activities in New York City, but businesses may deduct certain expenses to reduce their taxable income.
Conclusion
Sole proprietors, partnerships, LLCs, and other unincorporated businesses conducting business in New York City are generally subject to the Unincorporated Business Tax (UBT). This includes income earned from activities such as selling goods or services within the city. Exemptions may apply based on the type of business or income, but understanding the filing requirements and paying the tax is essential for compliance.
