The New York City PTET tax rate is a flat 3.876%, applied to the share of a partnership’s or S corporation’s income that flows to its New York City–resident owners. The entity pays the tax, and each resident owner claims a matching credit on their personal return, so the rate is designed to move a city-level tax bill onto the business’s books where it can be deducted federally without running into the individual SALT cap.
Why the Rate Is 3.876%
The 3.876% figure is not arbitrary. It equals the highest bracket of the New York City personal income tax, which applies to taxable income above $50,000 for single filers, $90,000 for joint filers, and $60,000 for heads of household.1NYC Comptroller. The NYC Personal Income Tax Before and After the Pandemic The city’s personal income tax uses graduated brackets starting at 3.078%, but the PTET does not. Every dollar of qualifying entity income is taxed at the same 3.876%.
Setting the entity rate at the top personal rate is a deliberate design choice. Because the PTET credit offsets each owner’s personal city tax dollar-for-dollar, owners whose effective personal rate sits below 3.876% will have the entity prepay slightly more than they personally owe. The excess is not lost. It flows back to the owner as a refundable credit.2New York State Department of Taxation and Finance. Pass-Through Entity Tax (PTET)
What Income the 3.876% Applies To
The rate does not touch the entity’s total profit. It applies only to the “city pass-through entity taxable income,” which captures the share of income allocated to NYC-resident owners. Income allocated to non-resident partners or out-of-state shareholders stays outside the base entirely.3New York State Department of Taxation and Finance. New York City Pass-Through Entity Tax (NYC PTET)
How that share is measured depends on entity type. Partnerships look at each city-resident partner’s share of income, gain, loss, and deductions. S corporations use a pro-rata approach based on ownership percentages among city-resident shareholders. If a partner moves into or out of the city during the year, the allocation for that partner must reflect their actual residency during the tax year.
Getting the base right matters because the 3.876% rate is applied mechanically to whatever number the entity reports. Overstating the base means overpaying. The excess comes back to the owners as refundable credits, but the entity’s cash is tied up until those personal returns are filed.
Who Can Be Taxed at This Rate
Only certain entities can elect the NYC PTET and pay the 3.876%. The eligibility rules split by entity type:
- City partnerships need at least one partner or member who is a New York City taxpayer. Multi-member LLCs taxed as partnerships for federal purposes qualify under this rule.
- City resident S corporations must have every shareholder be an individual who is a city taxpayer, and the entity must choose to be taxed as a resident S corporation for PTET purposes.
Single-member LLCs cannot elect the NYC PTET. The IRS treats them as disregarded entities, which means they are neither partnerships nor S corporations for tax purposes.4Internal Revenue Service. Single Member Limited Liability Companies A single-member LLC that has filed Form 8832 to elect S corporation treatment can qualify, but the default disregarded entity cannot.
The entity must also elect into the New York State PTET for the same tax year. The city election does not stand on its own.3New York State Department of Taxation and Finance. New York City Pass-Through Entity Tax (NYC PTET)
How the 3.876% Compares to the State PTET Rates
The NYC PTET is a separate layer on top of the New York State PTET, not a substitute. Where the city rate is a single flat percentage, the state PTET uses graduated rates that climb with the entity’s total pass-through entity taxable income:
- $2 million or less: 6.85%
- $2 million to $5 million: $137,000 plus 9.65% of the amount over $2 million
- $5 million to $25 million: $426,500 plus 10.30% of the amount over $5 million
- Over $25 million: $2,486,500 plus 10.90% of the amount over $25 million
A profitable NYC-resident-owned business that elects both taxes will pay at the applicable state bracket on its state PTET base and 3.876% on its city PTET base, generating two separate credits on the owners’ personal returns.
How the Rate Translates to a Credit for Owners
Each city-resident owner claims a credit equal to their direct share of the NYC PTET paid by the entity. The credit is claimed on Form IT-653 and attached to the individual’s personal income tax return, flowing to Form IT-201-ATT for full-year residents or Form IT-203-ATT for part-year and nonresident filers.6New York State Department of Taxation and Finance. Instructions for Form IT-653 Pass-Through Entity Tax Credit
One mechanical step catches people out. The owner must add the PTET credit amount back to federal adjusted gross income as a New York modification, reported on Form IT-225.2New York State Department of Taxation and Finance. Pass-Through Entity Tax (PTET) Without the addback, the tax would be deducted at the entity level and also reduce state-taxable personal income. The addback neutralizes the state and city effect so the benefit runs exclusively through the federal deduction.
If the credit exceeds the owner’s city tax for the year, the excess is treated as an overpayment and refunded without interest.2New York State Department of Taxation and Finance. Pass-Through Entity Tax (PTET) Two categories of owners cannot claim the credit at all: corporate partners, and partners that are themselves partnerships. The credit does not pass through a second tier of entities.
Whether 3.876% Actually Saves You Money
The rate itself is close to a wash at the personal level, because the credit offsets city tax dollar-for-dollar. The real benefit comes federally. By moving the tax onto the entity’s books, the payment becomes a business deduction that never touches the individual SALT cap.
For 2026, the individual SALT deduction cap rises to $40,400 under the One Big Beautiful Bill Act, with a phase-down beginning at $505,000 of modified adjusted gross income and dropping to $10,000 for those above roughly $606,000.7NYC Comptroller. The SALT Deduction in the House Budget Bill Owners whose combined state and city taxes already fit under that cap gain little federal benefit from paying 3.876% at the entity level, because they could deduct those taxes personally anyway. High-income NYC-resident owners of profitable pass-throughs are the group for whom the flat 3.876% pays for itself many times over.
Entities with a mix of resident and non-resident owners still benefit, but only on the resident share. A partnership where most income flows to non-NYC partners produces a smaller absolute deduction relative to the compliance work involved. For smaller operations near the SALT cap threshold, the math deserves a closer look before the election is made.