NYC Unincorporated Business Tax (UBT): What Startup Founders Need to Know

The NYC Unincorporated Business Tax is a 4% city tax on the business income of individuals and unincorporated entities that carry on a trade, business, profession or occupation wholly or partly in New York City. It sits in Title 11, Chapter 5 of the NYC Administrative Code, and it is separate from New York State tax and from NYC personal income tax.

The UBT applies to:

• Sole proprietors and freelancers (including people who report on Schedule C)
• General and limited partnerships
• LLCs taxed as partnerships
• Single-member LLCs disregarded for federal tax purposes
• Estates and trusts carrying on a business

It does not apply to C corporations, which pay the NYC Business Corporation Tax, or to federal S corporations, which the city still taxes under the older General Corporation Tax. Employees are also outside the UBT, as are people who only buy, hold and sell property for their own account.

For startup founders the UBT usually shows up in two places. The first is consulting income: a founder who freelances through a sole proprietorship or single-member LLC while building the company. The second is a startup that is still an LLC taxed as a partnership. Once you convert to a Delaware C corporation, the company leaves the UBT and enters the corporate tax system.

The rate is a flat 4% of unincorporated business taxable income allocated to the city. There are no brackets. What changes the bill is the path from federal profit to UBT taxable income.

On Form NYC-202 the calculation runs roughly like this:

1. Start with net business income (Schedule C profit for a sole proprietor).
2. Add back any deduction for state and local income taxes and for the UBT itself.
3. Make the other city modifications (depreciation decoupling, NOL rules).
4. If you also work outside NYC, apply the business allocation percentage.
5. Subtract the allowance for the taxpayer's own services: 20% of net income or $10,000, whichever is lower.
6. Subtract the $5,000 unincorporated business exemption (one exemption per taxpayer, prorated for a short year).
7. Multiply the result by 4%, then subtract the business tax credit.

For example, a founder with $200,000 of consulting revenue performed entirely in NYC and $40,000 of expenses has $160,000 of net income. The services allowance is capped at $10,000 and the exemption is $5,000, leaving $145,000. At 4% the UBT is $5,800. Because that is above $5,400, no business tax credit applies.

Allocation matters if you work partly outside the city. The UBT now uses a single receipts factor, and service income is sourced to where the services are actually performed. A founder who does the work from a home office in New Jersey is in a different position from one who sits in a Manhattan coworking space, even if the clients are the same.

You must file a UBT return if you carry on an unincorporated business wholly or partly in NYC and your total gross income from all businesses, wherever carried on, is more than $95,000. That figure is measured before deducting cost of goods sold or services, so it is a revenue test, not a profit test.

Two details trip people up. First, every unincorporated business you run is combined and treated as one business for the UBT, so two side consulting practices of $60,000 each put you over the line. Second, crossing the filing threshold does not mean you owe much. After the services allowance, the $5,000 exemption and the business tax credit, many smaller filers owe little or nothing, but they still have to file.

The UBT business tax credit is built into the return and is aimed at small businesses. It works off the tax computed before credits:

For example, if your tax before credit is $3,800, the credit is $3,800 × ($5,400 − $3,800) ÷ $2,000, or $3,040. You pay $760.

At the 4% rate, a $3,400 tax corresponds to $85,000 of taxable income and a $5,400 tax to $135,000. Inside that band each extra dollar of income is expensive because you lose credit as you earn more. If you sit near the top of the band, timing deductible expenses can change the result more than you might expect.

NYC residents can claim a credit against city personal income tax for part of the UBT they paid directly or through a partnership. You claim it on New York State Form IT-219 with your resident return.

The percentage depends on your NYC taxable income. Under the schedule in the 2025 IT-219 instructions, the credit is 100% of the UBT at city taxable income of $42,000 or less, falls gradually between $42,000 and $142,000, and is 23% at $142,000 or more. Married couples filing jointly use joint city taxable income. Nonresidents get no personal income tax credit, so a founder living in New Jersey or Westchester bears the full UBT.

Local Law 133 of 2026. In July 2026 the City Council passed Int. 972-2026, which the mayor returned unsigned on August 18, 2026; it took effect as Local Law 133 of 2026. It cuts the credit for high earners: the percentage phases down from 23% to 15% for city taxable income between $1 million and $1.25 million and is 15% above $1.25 million. Filers below $1 million keep the old schedule. The change applies to tax years beginning on or after January 1, 2026, so higher-income partners may need to raise their third and fourth quarter 2026 estimates. When we checked in October 2026, the Department of Finance had not yet published guidance on penalty relief for underpayments caused by the retroactive change.

Which form you file depends on how the business is organized:

• NYC-202: individuals and single-member LLCs. Due April 15 for calendar-year filers (April 15, 2026 for tax year 2025).
• NYC-202S: a shorter version for qualifying individuals.
• NYC-204: partnerships and LLCs taxed as partnerships. Due the 15th day of the third month after year-end (March 16, 2026 for tax year 2025). NYC-204EZ is available for simpler partnerships.
• NYC-EXT: automatic six-month extension, but only if you pay a properly estimated tax with it.

Estimated payments are required when your UBT for the year can reasonably be expected to exceed $3,400. Individuals use Form NYC-5UBTI and partnerships use NYC-5UB; the declaration is due by the 15th day of the fourth month of the tax year, with installments on the usual quarterly schedule. Underpayments are computed on Form NYC-221.

For 2025 returns there is one more wrinkle. New York decoupled the UBT from several federal changes made by the One Big Beautiful Bill Act (P.L. 119-21), including bonus depreciation. The Department of Finance offers interest and penalty abatement for timely 2025 returns whose liability rises because of these modifications, claimed with special condition code "OB" and a UBT OBBBA worksheet.

Incorporating takes you out of the UBT but into a different city tax. A C corporation doing business in NYC pays the Business Corporation Tax, generally 8.85% of allocated business income for most companies, with reduced rates of 6.5% to 8.85% for qualifying small businesses. If income is low or negative, you still owe the fixed dollar minimum, which starts at $25 for NYC receipts of $100,000 or less and scales with receipts. S corporations are exempt from the Business Corporation Tax but pay the General Corporation Tax.

So the choice is not "pay UBT or pay nothing." For a pre-revenue venture-backed startup, the C corporation's tax is usually the fixed dollar minimum, while an LLC with real profits pays 4% UBT on top of state and federal tax, and its NYC-resident owners only get a partial personal income tax credit once their income is above $42,000.

The UBT is rarely the reason to choose an entity. Venture investors, QSBS eligibility under IRC §1202 and option plans usually decide that a fundable startup should be a Delaware C corporation. The UBT is the reason founders who run consulting LLCs in the city should model the cost each year rather than assume the credit covers it.

The UBT base is set by statute, so most planning is about structure and records rather than tricks.

• Document where you work. Service income is sourced to where it is performed. If you genuinely work outside the city part of the year, keep calendars and travel records to support the allocation.
• Claim the services allowance and exemption. They are small ($10,000 and $5,000) but they are often missed on self-prepared returns.
• Watch the $3,400 to $5,400 band. That is where the business tax credit phases out, so expense timing has an outsized effect.
• Plan the conversion year. If you are moving from consulting to a funded C corporation, the year of conversion often has a short-period UBT return for the consulting business and a first BCT return for the corporation. Plan the cutover date with both in mind.
• Revisit 2026 estimates if you are a high earner. Local Law 133 lowers the resident credit for city taxable income above $1 million starting with 2026.

We prepare UBT returns for NYC founders and model the UBT against corporate tax when founders are deciding whether to incorporate. This is general information checked against nyc.gov and tax.ny.gov in October 2026, not tax advice for your specific facts.