What are the New York City filing requirements for a single member LLC that has elected to be treated as an S-corporation for Federal and NYS tax purposes

[SteveandToddCPAs]

A single-member LLC that was formed in 2017 made a federal election on form 2553 and NYS election of form CT-6 to be treated as a S-Corp for federal and NYS tax purposes.  I am now trying to determine how New York City taxes for this corporation should be filed.

With the election to be treated as an S-Corporation, the entity will not be paying federal income taxes.  Instead will receive pass-through treatment and pay taxes on all income earned on the 100% shareholders individual tax return.  For New York State purposes, I believe that treatment will be the same.  However, I am now trying to understand the New York City filing requirements.  

Is the S-Corporation also subject to the NYC General Corporation Tax and if so how does that tax get reported on the 100% shareholders NYS individual tax return.  The income from that corporation would already be included in the 100% shareholders personal income tax return as a pass through entity for NY so I am trying to determine the correct way to file this persons NYC and Individual tax return for both the pass-through-entity and as the 100% shareholder of the pass through entity.  Is this pass-through entity (for federal and NYS purposes) required to file and pay taxes as a separate NYC entity and then also pay NYC taxes on this income in the 100% shareholders personal return?  If so, that does not seem to make sense as there would appear to be a credit back somewhere to avoid the double taxation that S-Corp staus is supposed to prevent

[itonewbie · Accepted solution]

NYC does not recognize S corp, which means there would be double taxation if the shareholder is a NYC resident:

http://www1.nyc.gov/site/finance/taxes/business-general-corporation-tax-gct.page

You may also find a somewhat dated discussion thread helpful:

https://accountants-community.intuit.com/questions/182770-nyc-s-corporations-and-their-shareholders

[tsnickers]

An S-Corp Shareholder who is a NYC Resident will get a credit for their share of the NYC Corporate tax paid on the S-Corps Income.  See Form IT-219 NY City UBT Credit.  This amount flows to line 53 (2017 form IT-201) of the NY Resident tax return and this is how double taxation is avoided

[Musictax]

I'm looking at  Form IT-219 right now... what line would NYC Corp tax go on?

I only see the option to claim taxes from NYC-204 , NYC-202, or Beneficiaries.

[tsnickers]

For NYC IT-204 is the NYC Unincorporated Business tax return that the Partnership, S-Corp or Sole Proprietorship must file if they generate revenue in NYC.  The tax that is calculated on the form is then put on for IT-219 and the owner gets a credit for a percentage of the NYC UBT tax paid.

[tsnickers]

NYC 204 is for Partnerships and S-Corps and the partners share of the tax goes on line 1 of IT-219.  For individuals (Sole proprietors) the tax from NYC-202 goes on line 6 of IT-219

[Musictax]

Great, you also mentioned S-Corps... you might be mistaken 

as I do not see a line on IT-219 for S-Corp taxes paid with an NYC-3L or 4S

[itonewbie]

@Musictax I think @tsnickers may have mixed up UBT with GCT.  Credit for GCT is claimed on IT-222, which flows through to IT-201 ATT, Line 8a.  Unlike credit for UBT, credit for GCT phases out between taxable income of $35k and $100k, which could easily trigger double taxation for a lot of folks.

Hope this helps.

[tsnickers]

correct IT-222 is for NYC C-corps and S-corps that have NYC corporate tax and UBT.   And IT-219 is for Partnership and sole proprietor UBT

[itonewbie]

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@tsnickers wrote:

correct IT-222 is for NYC C-corps and S-corps that have NYC corporate tax and UBT.   And IT-219 is for Partnership and sole proprietor UBT

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IT-222 is only for GCT, never for UBT and NYC S corp are not subject to UBT in any case.  IT-219, on the other hand, is only for UBT.

[tsnickers]

I guess the S-corp UBT they are referring to in the instructions to the form are pass thru credits General information For tax years beginning on or after January 1, 2014, and before July 1, 2019, a New York City resident individual, estate or trust (including New York City resident beneficiaries), whose city adjusted gross income includes a pro rata share of income, loss, and deductions from one or more New York S corporations or exempt qualified subchapter S subsidiaries (QSSS), may be eligible for a credit on their income tax return for their pro rata share of New York City general corporation tax (GCT) paid, plus Unincorporated Business Tax (UBT) credit

[ronald]

Came across your post. I wanted to ask you more regarding your thoughts on the S corp in NYC. What some CPA's do is process salary to reduce NYC S corp tax while keeping in mind the AMT. 

I know some have different views, since by processing you are also paying FICA. 

So on one hand you are reducing NYC tax but you are also increasing your FICA tax (obviously if your payroll is not at a certain point). 

Wanted to know your take on this. 

[qbteachmt]

@ronald 

"Wanted to know your take on this."

An S corp is required to pay through Payroll to those providing services per IRS requirements. It isn't optional as you seem to indicate here: "What some CPA's do is process salary to reduce NYC S corp tax while keeping in mind the AMT. "

Here: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

"Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

Under section 7436 of the Internal Revenue Code, the IRS has the authority to reclassify payments made to shareholders from non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes."