# nyc-unincorporated-business-tax

## NYC Unincorporated Business Tax (UBT) v1.0

## What this file is

**Obligation category:** IT (Income Tax)
**Functional role:** Computation + Return
**Status:** Complete

This is a Tier 2 content skill for computing and preparing the NYC Unincorporated Business Tax return for sole proprietors and single-member LLCs doing business in New York City. The UBT is a city-level tax imposed on net income from unincorporated businesses operating in the five boroughs.

## Section 1 -- Scope statement

**In scope:**

- Form NYC-202 (Unincorporated Business Tax Return)
- Form NYC-202S (Simplified Unincorporated Business Tax Return for filers with gross income of $250,000 or less)
- Form NYC-202EIN (UBT estimated tax payments)
- Form IT-219 (Credit for NYC UBT against NYC resident income tax on Form IT-201)
- Sole proprietors operating in NYC
- Single-member LLCs operating in NYC
- The $95,000 exemption and its phase-out
- UBT estimated tax payments

**Out of scope (refused):**

- Partnerships (Form NYC-204)
- Corporations (General Corporation Tax / Business Corporation Tax)
- Employees who are NOT carrying on an unincorporated business
- Multi-jurisdictional allocation of UBT income (business allocation percentage)
- UBT credit for corporations (Form NYC-3L)
- Amended UBT returns

### Who must file

- **Who must file UBT return** — Every individual or SMLLC carrying on or liquidating a trade, business, profession, or occupation wholly or partly in NYC must file a UBT return if gross income from the NYC business exceeds $95,000.  _(NYC Admin Code §11-503(a))_

### Filing thresholds

**Filing thresholds**  _(NYC Admin Code §11-503(a); NYC-202S instructions)_

| Item | Amount | Source |
| --- | --- | --- |
| Filing requirement threshold | Gross income > $95,000 | NYC Admin Code §11-503(a) |
| Simplified return threshold | Gross income <= $250,000 (may use NYC-202S) | NYC-202S instructions |

### Due date

**Due date**  _(NYC Admin Code §11-514; NYC DOF instructions)_

| Item | Date | Source |
| --- | --- | --- |
| Annual return due date | April 15, 2026 (for tax year 2025) | NYC Admin Code §11-514 |
| Extension | Automatic with federal extension (to October 15, 2026) | NYC DOF instructions |

### Estimated tax payments

- **Estimated tax payments requirement** — Quarterly estimated payments are required if the expected UBT liability is $3,400 or more. Payment dates follow the same schedule as NY state estimated tax (April 15, June 15, September 15, January 15).  _(NYC-202EIN instructions)_

## Section 3 -- Rates and thresholds

**Rates and thresholds**  _(NYC Admin Code §11-503(a); §11-510(a); NY Tax Law §1310(e); Form IT-219; NYC-202EIN instructions)_

| Item | Amount | Source |
| --- | --- | --- |
| UBT rate | 4.0% of unincorporated business taxable income | NYC Admin Code §11-503(a) |
| Exemption | $5,000 specific exemption against net income | NYC Admin Code §11-510(a) |
| Exemption phase-out start | Line 17 tax > $3,400 | NYC Admin Code §11-510(a) |
| Exemption phase-out rate | Partial credit applies for line 17 tax over $3,400 and under $5,400 | NYC Admin Code §11-510(a) |
| Exemption fully phased out | Taxable income line 17 tax >= $5,400 | Computed: $95,000 + (2 x $95,000) |
| IT-219 credit | 100% of UBT paid, limited to NYC personal income tax liability | NY Tax Law §1310(e); Form IT-219 |
| Estimated tax threshold | $3,400 expected annual UBT liability | NYC-202EIN instructions |

- **UBT rate** — 4.0% of unincorporated business taxable income  _(NYC Admin Code §11-503(a))_
- **Exemption** — $5,000 specific exemption against net income  _(NYC Admin Code §11-510(a))_
- **Exemption phase-out start** — Line 17 tax > $3,400  _(NYC Admin Code §11-510(a))_
- **Exemption phase-out rate** — Partial credit applies for line 17 tax over $3,400 and under $5,400  _(NYC Admin Code §11-510(a))_
- **Exemption fully phased out** — Taxable income line 17 tax >= $5,400  _(Computed: $95,000 + (2 x $95,000))_
- **IT-219 credit** — 100% of UBT paid, limited to NYC personal income tax liability  _(NY Tax Law §1310(e); Form IT-219)_
- **Estimated tax threshold** — $3,400 expected annual UBT liability  _(NYC-202EIN instructions)_

### Exemption phase-out computation

**Exemption phase-out computation**  _(NYC Admin Code §11-510(a))_

| Taxable income | Exemption | Tax |
| --- | --- | --- |
| $95,000 or less | $95,000 (full) | $0 |
| $120,000 | $95,000 - ($25,000 / 2) = $82,500 | ($120,000 - $82,500) x 4% = $1,500 |
| $150,000 | $95,000 - ($55,000 / 2) = $67,500 | ($150,000 - $67,500) x 4% = $3,300 |
| $190,000 or more | $0 (fully phased out) | Taxable income x 4% |

- **Phase-out mechanism** — The $95,000 exemption is reduced by $1 for every $2 of taxable income exceeding $95,000.  _(NYC Admin Code §11-510(a))_

## Section 4 -- Computation rules (Step format)

### Step 1: Determine if UBT applies

- **UBT applicability tests** — The taxpayer must be carrying on a trade, business, profession, or occupation wholly or partly within NYC. Key tests: 1. Is there a profit motive? (Hobby income is not subject to UBT.) 2. Is the business conducted in NYC? (Physical presence, not just customers.) 3. Is the individual an employee or an independent contractor? (Employees are not subject to UBT for their employment income.)

### Step 2: Compute unincorporated business gross income (NYC-202, Line 1)

- **Gross income computation** — Start with gross income from the business: - Schedule C gross income (for sole proprietors) - Include all business income attributable to NYC operations - Include gains from business property

### Step 3: Compute unincorporated business deductions (NYC-202, Lines 2-13)

- **Deduction rules** — Allowable deductions mirror federal Schedule C deductions with these exceptions: - **No deduction for:** salaries paid to the owner, distributions to owner, federal/state/local income taxes (including UBT itself). - **Add back:** owner's health insurance deduction, retirement plan contributions for the owner (these are personal deductions, not business deductions for UBT).

### Step 4: Compute unincorporated business taxable income (NYC-202, Line 14)

- **Taxable income formula** — Gross income - allowable deductions = unincorporated business taxable income (before exemption).

### Step 5: Apply the $5,000 specific exemption

- **Specific exemption** — A specific exemption of $5,000 is allowed against net income. If the business was carried on for a short tax year, prorate the exemption under the NYC form instructions.

### Step 6: Compute tax before business tax credit

- **Tax before credit formula** — (Taxable income after the specific exemption) x 4% = UBT before business tax credit.

### Step 7: Apply the business tax credit

- **Business tax credit rules** — - If tax before credit is $3,400 or less, the credit equals the full tax and no UBT is due before other credits. - If tax before credit is $5,400 or over, no business tax credit is allowed. - If tax before credit is over $3,400 but under $5,400, credit = tax x ($5,400 - tax) / $2,000.

### Step 8: Compute net UBT due

- **Net UBT due formula** — Tax before business tax credit - business tax credit - other allowable credits = net UBT due.

### Step 9: Compute IT-219 credit (for NYC residents)

- **IT-219 credit mechanics** — The full amount of UBT paid is available as a credit against NYC personal income tax via Form IT-219. This credit: - Is limited to the NYC personal income tax liability (cannot create a refund) - Flows to Form IT-201-ATT, Line 53 (NYC resident tax credit) - Effectively prevents double taxation of NYC business income at both the UBT and personal income tax levels

### Step 10: File and pay

- **Filing and payment** — - File NYC-202 (or NYC-202S) with NYC Department of Finance. - Pay any balance due. - Retain confirmation for reviewer brief.

## Section 5 -- Edge cases and special rules

### E-1: Freelancers and independent contractors

- **Freelancer UBT nexus** — A freelancer who provides services in NYC is subject to UBT if their NYC business gross income exceeds $95,000. Simply having clients in NYC may be sufficient nexus if the work is performed in NYC.

### E-2: Work-from-home in NYC

- **Work-from-home NYC sourcing** — If a freelancer works from home in NYC, the home office IS in NYC, and all income earned from that home office is NYC-source business income for UBT purposes.

### E-3: Mixed NYC/non-NYC income

- **Business allocation percentage** — If the business operates both inside and outside NYC, the taxpayer must allocate income using the business allocation percentage. This is computed on Schedule C of Form NYC-202 using a formula based on property, payroll, and gross receipts in NYC vs. everywhere. This skill handles only 100% NYC businesses; allocation is out of scope.

### E-4: The IT-219 credit is critical

- **IT-219 credit economic effect** — NYC residents who pay UBT and also owe NYC personal income tax receive a full credit for UBT paid via Form IT-219. This means the economic burden of UBT for NYC residents is reduced (often to zero additional tax) because the credit offsets NYC personal income tax. However, the credit cannot exceed the NYC personal income tax, so if UBT exceeds NYC personal income tax, the excess UBT is a net cost.

### E-5: Hobby vs. business

- **Hobby vs business standard** — Activities not engaged in for profit (hobbies) are not subject to UBT. The IRS presumption (profit in 3 of 5 years) is a useful guideline but is not the UBT standard. NYC follows federal characterization of the activity.

### E-6: Multiple businesses

- **Combining multiple businesses** — If a taxpayer operates multiple unincorporated businesses in NYC, all businesses are combined on a single NYC-202 return. Separate NYC-202 forms are not filed for each business.

### E-7: Simplified return (NYC-202S)

- **NYC-202S eligibility** — If gross income from the business is $250,000 or less AND the taxpayer has no employees, no motor vehicle expenses, and no depreciation deductions, Form NYC-202S (simplified) may be used instead of the full NYC-202.

## Section 6 -- Test suite

### Test 1: Income below exemption

**Input:** Freelancer with $80,000 NYC business gross income.
**Expected:** Below $95,000 threshold. No UBT due. No filing required (gross income <= $95,000).

### Test 2: Income in phase-out range

**Input:** Freelancer with $130,000 taxable business income, all NYC.
**Expected:** Excess: $130,000 - $95,000 = $35,000. Exemption reduction: $35,000 / 2 = $17,500. Allowable exemption: $95,000 - $17,500 = $77,500. Taxable after exemption: $130,000 - $77,500 = $52,500. UBT: $52,500 x 4% = $2,100.

### Test 3: Income above phase-out

**Input:** Freelancer with $200,000 taxable business income, all NYC.
**Expected:** Exemption fully phased out ($0). UBT: $200,000 x 4% = $8,000.

### Test 4: IT-219 credit

**Input:** Same as Test 3. NYC personal income tax: $6,500. UBT paid: $8,000.
**Expected:** IT-219 credit: limited to $6,500 (cannot exceed NYC personal income tax). Net UBT cost: $8,000 - $6,500 = $1,500.

### Test 5: Simplified return eligibility

**Input:** Freelancer with $100,000 gross income. No employees, no vehicle, no depreciation.
**Expected:** Eligible for NYC-202S. Must still compute exemption phase-out.

## Section 7 -- Prohibitions

- **P-1** — Do NOT deduct the owner's salary, draws, or distributions when computing UBT taxable income.
- **P-2** — Do NOT deduct federal, state, or local income taxes (including UBT itself) from UBT income.
- **P-3** — Do NOT claim the IT-219 credit in excess of the NYC personal income tax liability.
- **P-4** — Do NOT apply the UBT to employment income. Employees are not subject to UBT.
- **P-5** — Do NOT file separate NYC-202 returns for multiple businesses. Combine all businesses.
- **P-6** — Do NOT allocate income between NYC and non-NYC without using the business allocation percentage schedule. This skill covers only 100% NYC businesses.

## Section 8 -- Self-checks

Before delivering output, verify:

- [ ] Business activity is in NYC (not just clients in NYC)
- [ ] Gross income exceeds $95,000 filing threshold
- [ ] Exemption phase-out computed correctly using $1-for-$2 formula
- [ ] Owner's salary/draws NOT deducted from UBT income
- [ ] Income taxes NOT deducted from UBT income
- [ ] IT-219 credit correctly limited to NYC personal income tax liability
- [ ] Estimated tax required if UBT liability >= $3,400
- [ ] NYC-202S eligibility checked (gross income <= $250K, no employees, no vehicles, no depreciation)
- [ ] Reviewer brief notes the IT-219 credit flow to IT-201

## Section 9 -- Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, EA, tax attorney, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.

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