How does NY State tax pass-through income for LLC owners?
By default, a New York LLC is not taxed at the entity level. Instead, the business income flows through to your personal state tax return. If you’re a single-member LLC, you report it on your individual return. If there are multiple members, the LLC files an informational return and each member reports their share of the income on their own return. Either way, you personally pay the tax.
New York’s personal income tax rates are graduated, starting at 4% and going up to 10.9% for income over $25 million. For most small business owners in the Bronx or across the city, the effective top rate lands somewhere between 6.85% and 9.65% depending on total taxable income. This is on top of federal income tax and self-employment tax.
If you live or operate in New York City, there’s an additional city income tax ranging from about 3.078% to 3.876%. That means a profitable LLC owner in the Bronx could be looking at a combined state and city rate approaching 13% or more before federal taxes even enter the picture. This is why accurate full-service bookkeeping matters so much for NYC business owners. Every deductible expense you miss increases your taxable income across all of these layers.
The federal SALT (State and Local Tax) cap created a real problem starting in 2018. Individual taxpayers can only deduct $10,000 of state and local taxes on their federal return. For high-earning LLC owners paying significant New York and NYC taxes, a huge portion of those payments became non-deductible federally.
New York’s response was the Pass-Through Entity Tax, or PTET. This is an optional election where the LLC itself pays state tax at the entity level rather than the income flowing through to your personal return. The rates mirror the personal rates. The key benefit is that the entity-level tax payment is not subject to the $10,000 SALT cap on your federal return. The business deducts it as a state tax, and you receive a corresponding credit on your personal New York return so you’re not taxed twice. The net result is that you effectively get a full federal deduction for your New York state taxes.
The PTET election is most meaningful if your pass-through income is high enough that your state tax payments significantly exceed $10,000. For a business owner making $150,000 or more through an LLC, the federal tax savings from the PTET election can be several thousand dollars per year. The election must be made annually by the entity, and there are specific deadlines that your accountant needs to track.
One thing to keep in mind is that New York also imposes an annual filing fee on LLCs based on New York-source gross income. This ranges from $25 to $4,500 depending on revenue. It’s not a huge amount for most small businesses, but it’s a separate obligation that catches some owners off guard.
Talk to your accountant or CPA about whether the PTET election makes sense for your situation. The math depends on your total income, filing status, and other deductions. If you need help keeping your books in shape so your accountant has clean numbers to work with, our team of Bronx bookkeepers works with LLC owners across all five boroughs and Westchester County.
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