NY startup tax guide: 6.5% corporate tax, 4% NYC UBT, 9% refundable R&D credit, QSBS recognition, convenience of employer rule, and navigating tri-state complexity.
Updated October 2024 • 24 min read
Corporate Tax
NYC UBT
R&D Credit
QSBS Recognized
New York City is the second-largest startup ecosystem in the US after San Francisco. While taxes are high, the ecosystem offers unparalleled access to finance, media, fashion tech, and B2B opportunities.
Unlike California, New York recognizes the federal QSBS exclusion. On a $10M qualifying exit, NY residents can exclude the gain from state taxes, saving up to $1M compared to California founders who pay 13.3% on the full amount.
NY corporations pay the highest of three calculations. Effective rate is typically 6.5% for profitable startups.
You pay the highest of the three calculations
| NY Receipts | Minimum Tax |
|---|---|
| Under $100K | $25 |
| $100K - $250K | $75 |
| $250K - $500K | $175 |
| $500K - $1M | $500 |
| $1M - $5M | $1,500 |
| $5M - $25M | $3,500 |
| $25M+ | $5,000 |
Startup with $2M revenue, $300K taxable income:
NYC imposes an additional 4% Unincorporated Business Tax on LLCs, partnerships, and sole proprietors doing business in NYC. This is IN ADDITION TO state tax.
Note: C-corps don't pay UBT (they pay corporate tax instead)
Exemption threshold (2024)
If NYC-allocated gross income is under $95,000, you owe no UBT. Above that, you pay 4% on income exceeding the exemption.
LLC with $500K NYC-allocated income:
NY has progressive state tax (up to 10.9%) plus NYC adds up to 3.876% for city residents. Combined top rate: 14.776% (state + city).
Most founders pay effective ~9-11% combined (state + city)
vs. California: CA founder pays $1.33M in state tax on same exit. NY recognition of QSBS is HUGE advantage!
New York is one of the few states that fully recognizes the federal QSBS exclusion. If you qualify for federal QSBS (100% exclusion up to $10M or 10x basis), New York also excludes the gain from state and NYC tax. This makes NY significantly more favorable than California for startup exits.
NY offers a 9% R&D credit that's REFUNDABLE for qualified emerging technology companies. Unlike California's non-refundable credit, you can get cash back even with no tax liability.
NY offers both options depending on company type:
Tech startup with $800K in QREs:
If qualified as QETC and no NY tax liability, the $72,000 NY credit is REFUNDABLE (you get cash back)!
New York's "convenience of employer" rule is one of the most controversial state tax policies. It can require employees working remotely from other states to pay NY taxes.
If you work remotely from another state for a NY employer, NY presumes you're working remotely for YOUR convenience (not employer necessity). This means NY taxes your income as if you worked in NY.
Documentation critical! Employer must prove necessity, not convenience.
This rule complicates hiring for NY startups with remote teams:
Employers in the MTA region (NYC, Long Island, Westchester, etc.) pay MCTMT on payroll. It's a small additional tax often forgotten by startups.
Startup with $2M annual NYC payroll:
NYC startups often have team members in NJ and CT. This creates complex multi-state tax issues that California startups don't face.
Tri-state operations significantly increase tax compliance costs. Budget for professional help and multi-state payroll services. Many NYC startups underestimate this complexity.
Who Files:
Deadline:
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | Jan-Mar | March 15 |
| Q2 | Apr-Jun | June 15 |
| Q3 | Jul-Sep | Sept 15 |
| Q4 | Oct-Dec | Dec 15 |
Form NYC-204: Unincorporated Business Tax Return
LLC owners forget about 4% NYC UBT on top of state tax. Can owe $20K+ unexpectedly.
Solution: Budget for UBT. Consider C-corp conversion if profitable in NYC.
Not documenting employer necessity for remote workers. Creates double taxation issues.
Solution: Document all remote positions as employer necessity. Consult CPA for remote hiring.
Missing refundable 9% NY R&D credit means leaving cash on the table, even with no tax liability.
Solution: File for QETC status. Document R&D from day one. Claim refundable credits.
Small 0.34% payroll tax but penalties for non-payment add up quickly.
Solution: Use payroll service that handles MCTMT automatically.
DE C-Corp, NYC operations, $10M QSBS-qualified exit
NY Founder saves $1.36M compared to CA founder on same exit!
This is why QSBS recognition makes NY significantly more attractive than CA for startup exits.
4% Unincorporated Business Tax on LLCs, partnerships, and sole proprietors doing business in NYC. C-corps don't pay UBT (they pay corporate tax instead). First $95K is exempt.
Yes! NY is one of few states that fully recognizes QSBS. On a $10M qualifying exit, you pay $0 NY tax. This is a HUGE advantage over California (which doesn't recognize QSBS).
NY presumes remote work for NY employers is for employee convenience, not necessity. This means NY can tax income of employees working remotely from other states. Controversial and creates double taxation issues.
Yes, if you qualify as a QETC (Qualified Emerging Technology Company). The 9% credit is refundable, meaning you get cash back even with no tax liability. Major benefit for pre-revenue startups.
Metropolitan Commuter Transportation Mobility Tax. Payroll tax (0.11% - 0.34%) on employers in MTA region (NYC, Long Island, Westchester). Often forgotten but penalties apply for non-payment.
For VC-backed startups, C-corp is strongly preferred. Avoids NYC UBT (4%), can claim R&D credits, better for stock options, and QSBS-eligible. LLCs work for consulting/services but not ideal for tech startups.
Complex. Employees may owe tax in both work state and resident state (with credits). Employers must register for payroll taxes in each state with employees. Convenience rule adds complexity. Professional help recommended.
6.5% on business income base for most startups. You pay the highest of three calculations: income base (6.5%), capital base (0.025%), or fixed minimum ($25-$5,000 based on receipts).
NY tax compliance is complex with UBT, convenience rule, tri-state issues, and R&D credits. Our startup tax specialists help you navigate it all.