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Understanding Personal Income Tax in New York

Filed under State Taxes. Fact checked on February 13, 2013.

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New York's personal income tax is discussed.

If you operate your business in a noncorporate form, what does this mean for you and your business as far as New York tax liability? Basically, if you avoided the corporate level tax by operating as a noncorporate entity, you'll still get hit with a personal tax on the business income that passes through to you.

Noncorporate entities, such as partnerships, are not subject to the personal income tax, but the income passes through to their owners for tax purposes. To determine how the New York income tax applies to your business income, please read on.

Sole proprietorships. New York imposes an income tax on individuals. Residents of New York are taxed on income from all sources (nonresidents are only taxed on income from New York sources). This basically means that if you operate your business as a sole proprietorship in New York, your business income will be subject to New York income tax.

The following generally are the New York income tax rates for 2012:

Single, Married Filing Separately
If NY taxable income is: The tax is:
Not over $8,000 4% of NY taxable income
Over $8,000 but not over $11,000 $320 plus 4.5% of excess over $8,000
Over $11,000 but not over $13,000 $455 plus 5.25% of excess over $11,000
Over $13,000 but not over $20,000 $560 plus 5.9% of excess over $13,000
Over $20,000 but not over $75,000 $973 plus 6.45% of excess over $20,000
Over $75,000 but not over $200,000 $4,521 plus 6.65% of excess over $75,000
Over $200,000 but not over $1,000,000 $12,833 plus 6.85% of excess over $200,000
Over $1,000,000 $67,633 plus 8.82% of excess over $1,000,000

Married Filing Jointly, Qualifying Widow(er)
If NY taxable income is: The tax is:
Not over $16,000 4% of NY taxable income
Over $16,000 but not over $22,000 $640 plus 4.5% of excess over $16,000
Over $22,000 but not over $26,000 $910 plus 5.25% of excess over $22,000
Over $26,000 but not over $40,000 $1,120 plus 5.9% of excess over $26,000
Over $40,000 but not over $150,000 $1,946 plus 6.45% of excess over $40,000
Over $150,000 but not over $300,000 $9,041 plus 6.65% of excess over $150,000
Over $300,000 but not over $2,000,000 $19,016 plus 6.85% of excess over $300,000
Over $2,000,000 $135,466 plus 8.82% of excess over $2,000,000

Head of Household
If NY taxable income is: The tax is:
Not over $12,000 4% of NY taxable income
Over $12,000 but not over $16,500 $480 plus 4.5% of excess over $12,000
Over $16,500 but not over $19,500 $683 plus 5.25% of excess over $16,500
Over $19,500 but not over $30,000 $840 plus 5.9% of excess over $19,500
Over $30,000 but not over $100,000 $1,460 plus 6.45% of excess over $30,000
Over $100,000 but not over $250,000 $5,975 plus 6.65% of excess over $100,000
Over $250,000 but not over $1,500,000 $15,950 plus 6.85% of excess over $250,000
Over $1,500,000 $101,575 plus 8.82% of excess over $1,500,000

Partnerships. If you operate your business as a partnership, the partnership entity itself isn't subject to tax, but the income you receive from your partnership is taxable to you on a personal level. The tax rates above will apply to income you receive from your partnership.

Limited Liability Companies. The New York personal income tax and the corporate franchise tax conform to the federal income tax classification of LLCs and LLPs. Accordingly, an LLC or LLP that is treated as a partnership for federal income tax purposes will be treated as a partnership for New York tax purposes. An LLC or LLP that is treated as a corporation, including an S corporation, for federal income tax purposes will be treated as a corporation for New York tax purposes or as a New York S corporation if the New York S election is made. A single-member LLC (SMLLC) may choose to be taxed as a corporation, including an S corporation, or to be disregarded as an entity for federal income tax purposes. If the LLC is disregarded and the single member is an individual, the LLC will be treated as a sole proprietorship for New York tax purposes. If the LLC is disregarded and the single member is a corporation, including an S corporation, the LLC will be considered part of the corporation for New York tax purposes.

S corporations. To avoid the double taxation trap of a regular corporation, the IRS allows businesses to elect to be treated as an S corporation. If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any federal corporate level income tax. However, you'll have to claim your entire share of the business' income on your personal federal income tax return even if you did not take any money out of the business.

New York does not automatically recognize the federal S corporation election. To be treated as a New York S corporation, the corporation must make that election by filing Form CT-6, Election by a Federal S Corporation to be Treated as a New York S Corporation. If the state election is also made, shareholders of the corporation pay New York State personal income tax on their pro rata share of income earned by the corporation—just as they are taxed at the federal level.

However, even if the election is made, New York imposes a corporate level tax on its S corporations. The tax imposed is the minimum tax set forth above.

New York City income tax. Residents of New York City (NYC) must pay an additional income tax on their individual income.

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