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Resident S Corporation Owners Can Claim NYC Credit for GCT Paid by S Corporations

L. 2013, S2320, effective 01/30/2013 (deemed to have been in full force 06/01/2012), provides a NYC personal income tax credit for General Corporation Tax (GCT) paid by an S corporation.

Curiously, the credit is available only for taxable years beginning on or after January 1, 2014 and before July 1, 2015.

Further, the credit is limited to those taxpayers with taxable income below $100,000. In fact, a full formula is provided to calculate the amount of credit allowed, which varies based on the taxpayer's taxable income.

Specifically, Section 11-1706 of the Administrative Code of the City of New York has been amended by adding a new subdivision “(f).” This new subsection allows a city resident individual, estate, or trust whose city adjusted gross income includes a pro rata share of income, loss, or deduction from one or more New York S corporations or qualified subchapter S subsidiaries a credit against personal income tax. The credit is a one-to-one credit for taxpayers with less than $35,000 of taxable income. It is reduced via a formula for those with incomes between $35,000 and $100,000. It is disallowed completely for those with taxable incomes above $100,000.

Taxpayers should note that there is already a resident credit for Unincorporated Business Tax (UBT) paid by a partner. In other words, this new law makes pass-through entity selection more neutral.

Briefly, the UBT tax applies as follows: A city resident individual, estate or trust whose city adjusted gross income includes income, gain, loss or deductions from one or more unincorporated businesses conducted by the resident that is subject to the city UBT, or a distributive share of income, gain, loss and deductions of, or guaranteed payments from, one or more partnerships that are subject to the city UBT, is allowed a credit for the UBT imposed on and paid by each entity for its taxable year ending with the taxable year of the taxpayer.

The amount of tax creditable is structured differently between the two credits. The GCT paid by S corp credit, above, is completely eliminated for taxpayers with more than $100,000 of taxable income. The UBT credit, however, is reduced from a one-to-one credit for taxpayers with city taxable income above $42,000, and is never completely eliminated: instead, for those with city taxable income of $142,000 or greater, the credit is 23% of the taxpayer's UBT.

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