New York City Taxes for Freelancers and Self-Employed People: The UBT

Working for yourself in New York City means more than one layer of tax. You may owe federal income tax, self-employment tax, New York State tax, and a city tax that surprises many people: the Unincorporated Business Tax (UBT).

The layers

Federal income tax and self-employment tax. The self-employment tax rate is 15.3% on net earnings of $400 or more. See quarterly estimated taxes.
New York State income tax.
City income tax for New York City residents.
The UBT, which is a separate tax on unincorporated businesses carried on in the city.

What the UBT is

The UBT applies to individuals and unincorporated entities, including sole proprietors and single-member LLCs, that carry on business in New York City. According to the instructions for Form NYC-202:

The form is required when total gross income from all business is more than $95,000.
The tax rate is 4%.
There is a $5,000 exemption and an allowance for the owner’s personal services, and a credit can reduce or eliminate the tax at lower levels of tax.
Income from professions such as law, medicine, and architecture is not exempt based on being a personal service.

The 2023 instructions list these amounts. Check the current year’s instructions before you rely on any figure, because they can change.

Forms and dates

Individuals file Form NYC-202 or NYC-202S, and single-member LLCs file NYC-202.
For calendar-year filers, the form is due April 15 of the following year.
A six-month extension is available by filing Form NYC-EXT and paying the properly estimated tax.

Who is affected

Freelancers, consultants, and sole proprietors with a business in the city may need to file. If you formed a single-member LLC, the UBT can apply to it as well. Elections like S-corporation status can change which city taxes apply, so talk to a professional before you elect.

Planning tips

Track gross business income, not only profit, because the filing test uses gross income.
Set aside money for city and state taxes, not only federal. See profit is not cash.
Keep records of where you perform work.

Other state and local taxes may also apply to you. Ask your preparer.

Need a hand? Book a call with FlowTex.

Sources

This article is general information, not tax advice. Dollar amounts come from the 2023 NYC-202 instructions and may have changed. Confirm current figures with the NYC Department of Finance.