Personal Income Tax in New York

April 13, 2006

	Visited: 143
	Not rated
	Rate:

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 are the New York income tax rates for 2006:

Single Individuals, Married Couples Filing Separately, Estates and Trusts
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	$973 plus 6.85% of excess over $20,000

Married Couples Filing Jointly and Surviving Spouses
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	$1,946 plus 6.85% of excess over $40,000

Head of Household Taxpayers
If NY taxable income is:	The tax is:
Not over $11,000	4% of NY taxable income
Over $11,000 but not over $15,000	$440 plus 4.5% of excess over $11,000
Over $15,000 but not over $17,000	$620 plus 5.25% of excess over $15,000
Over $17,000 but not over $30,000	$725 plus 5.9% of excess over $17,000
Over $30,000	$1,492 plus 6.85% of excess over $30,000

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. New York law recognizes businesses operating as limited liability companies (LLCs). As an LLC you will be treated, for New York tax purposes, much like a partnership. In other words, the entity itself isn't subject to tax, but the income you receive from your LLC is taxable to you on a personal level. The tax rates above will apply to income you receive from your LLC.

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 IRS 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.

Unlike most states, New York does impose a corporate level tax on its S corporations. There is also the pass-through of income of the S corporation to individual shareholders for New York income tax purposes, at the individual rates discussed above.

If a New York S corporation has nonresident shareholders, they too are subject to taxation on a personal level. Nonresidents must multiply the pro rata share of corporate income or loss by the corporate business allocation percentage.

New York City income tax. Residents of New York City (NYC) must pay an additional income tax on their individual income. For 2006, rates generally range from 2.907 percent of NYC taxable income to 3.648 percent. The amount of tax paid depends on your income and filing status.