How S Corporations Are Taxed in New York City

S corporations (S corps) are a popular business structure for small business owners because they combine the liability protection of a corporation with the tax benefits of pass-through taxation. However, NYC does not recognize S corporations. Typically, S corporations are subject to the General Corporation Tax (GCT).

1. Who Must Pay the General Corporation Tax?

All S corporations in NYC that are:

• Doing business or employing capital in NYC

• Maintaining an office, owning or leasing property in a corporate or organized capacity in NYC

If a corporation isn't subject to the tax but has a representative in NYC, it may need to file Form NYC-245. However, this isn't required if the corporation's only connection to NYC is that its representatives live there or visit occasionally for isolated transactions.

3. How Much is the Tax?

While there is some nuance, the tax is typically 8.85% of net income allocated to NYC.

4. Shareholder-Level Taxation

A shareholder residing in NYC is required to pay NYC resident tax on the salary they receive from the corp.  They will not pay NYC resident tax on S corp profits distributed outside of payroll. 

5. Estimated Taxes

If the S corporation expects to owe more than $1,000 in taxes, it must make quarterly estimated tax payments to avoid penalties.

Why Understanding NYC S Corporation Taxation Matters

Navigating NYC’s unique S corporation tax rules can be complex, but staying compliant and optimizing your tax situation is crucial. Our team at NotchBooks is here to help. Contact us today to schedule a consultation and ensure your business meets all its NYC tax obligations.