New York City recently enacted Int. 972, amending NYC Administrative Code Section 11-1706 and retroactively reducing the Unincorporated Business Tax (“UBT”) credit for residents with taxable income exceeding $1 million.
Prior Law
NYC is one of the few jurisdictions that impose an entity-level tax on unincorporated entities carrying on a trade or business in the city. To alleviate double taxation, the city allows resident taxpayers to take a credit against their NYC personal income tax for their share of UBT paid by the unincorporated entities.
For tax years prior to 2026, resident taxpayers with more than $142,000 of city taxable income were entitled to a credit equal to 23% of their share of the UBT paid by the unincorporated entities.
2026 Retroactive Law Change
For tax years beginning on or after January 1, 2026, the UBT credit available to resident taxpayers with more than $1 million in city taxable income will phase down as follows:
- Taxpayers with income between $1,000,000 and $1,250,000 will have the credit reduced by the amount that the income exceeds $1,000,000, divided by $250,000 and multiplied by 8%.
- Taxpayers with income exceeding $1,250,000 will be entitled to a 15% credit.
Estimated Payments
NYC residents who are partners in unincorporated businesses and receive the UBT credit should calculate the impact of this reduction. Affected taxpayers may need to adjust the estimated payments that have already been made and calculated. The city has not indicated that it will waive penalties for any underpayments arising from this retroactive change.
Entity Apportionment
Now that the UBT credit is being reduced for city residents with income exceeding $1 million, unincorporated businesses that provide services should review their sales factor numerator to ensure they are not overpaying NYC UBT. NYC utilizes a single sales factor to calculate taxable income. For service businesses, revenue is generally sourced to the city when services are performed there.
Sales or charges allocated to the city must include sales negotiated or consummated, as well as charges for services performed, by employees, agents, agencies or independent contractors connected to offices of the unincorporated business, or other agencies in the city.
Actions to Consider and How Grassi Can Help
Resident owners of UBT-paying businesses should ensure that the entity is not overpaying UBT, as this will have a direct impact on the taxpayer’s obligations. In addition, the retroactive effective date may affect the amount of tax owed for the 2026 tax year. Taxpayers should review their estimated payments to account for the decrease in the UBT credit as the city has not indicated that it will waive underpayment penalties.
Connect with your Grassi advisor to discuss how NYC’s reduction of the UBT resident credit may affect your 2026 city tax planning and compliance obligations.
This article is provided for general informational purposes only and does not constitute tax, legal or accounting advice.
