- Historically, taxpayers with taxable income of $142,000 or greater were entitled to a credit equal to 23 percent of their portion of the unincorporated business tax paid by entities subject to the tax in which the individuals were members, partners, or proprietors.
- For 2026 and beyond, this credit has been reduced for taxpayers with city taxable income of more than $1,000,000.
- For taxpayers whose taxable income is between $1,000,000 and $1,250,000, the credit is reduced by the amount that the taxpayer’s income exceeds $1,000,000, divided by $250,000 and multiplied by 8%. Taxpayers with income more than $1,250,000 will be entitled to 15% credit.
Background
New York City imposes an unincorporated business tax (“UBT”) on unincorporated entities carrying on a trade or business in the city. To mitigate the impact of double taxation on those entities’ members, partners or sole proprietors, New York City permits resident taxpayers (including resident individuals, estates, and trusts) to take a credit against their personal income tax for their share of the UBT paid by those entities.
Prior Law
New York City Administrative Code § 11-1706(c) provides for a credit for resident individuals, estates and trusts whose New York City adjusted gross income includes income from one or more unincorporated businesses. The amount of the credit is based upon the proportionate percentage of the amount of UBT, attributable to the taxpayer’s interest in the entity or entities paying the UBT. For years prior to 2026, taxpayers with city taxable income of more than $142,000 were entitled to a credit equivalent to 23% of the amount of the UBT paid by the entities on the taxpayer’s behalf.
2026 Legislative Change
On August 18th, New York City enacted Local Law 133 of 2026 (formerly Int.No. 972), amending § 11-1706 of the New York City Administrative Code to reduce the resident UBT credit for certain high-income taxpayers. The legislation reduced the percentage amount of the credit for UBT that taxpayers with city taxable income of more than $1,000,000 can take. Taxpayers with income more than this threshold will calculate the amount by which city taxable income exceeds $1,000,000, divide that difference by $250,000 and multiply that by 8% to calculate the amount of the reduction. The floor for credit high income taxpayers can take is 15%.
A simple example might show how this reduction is calculated. A taxpayer with city taxable income of $1,125,000 would have $125,000 of income in excess of the $1,000,000 threshold. Dividing $125,000 by $250,000 results in a quotient of ½ (50%). Multiplying ½ (50%) by 8% results in a 4% reduction in the credit rate. As a result, our hypothetical taxpayer would be entitled to a credit of 19% of the taxpayer’s share of UBT paid on his behalf.
It is important to note that this legislation took effect immediately and applies retroactively to taxable years beginning on or after January 1, 2026.
How Forvis Mazars Can Help
The retroactive effective date may have an impact on the amount of tax a taxpayer is expected to pay in the current tax year. We can assist taxpayers with calculating projected city taxable income, the projected amount of UBT that may be paid on their behalf and help them adjust estimated tax payments if necessary to account for the loss of the additional credit.