New York City has turned to its unincorporated business tax regime to raise revenue, this time by cutting the personal income tax credit that offsets UBT liability for the City's highest earners. Int. No. 972-2026 – an amendment to the City’s Administrative Code – became law on August 18 without Mayor Zohran Mamdani's signature, and its cuts to the credit are retroactive to January 1, 2026. Here's what changed, why it matters, and why it's just the latest entry on a growing list of reasons prompting high-net-worth New Yorkers to consider leaving the City altogether.
How the Credit Used to Work
The UBT is a 4% entity-level tax imposed on unincorporated businesses operating in the City, including partnerships, LLCs, and sole proprietorships. Because that tax hits at the entity level, City residents who are partners or proprietors of these businesses have long been allowed to claim a credit against their City personal income tax for their distributive share of the UBT paid. Before this bill, the credit covered 100% of UBT liability for taxpayers with City taxable income up to $42,000, then gradually phased down to a floor of 23% for anyone with taxable income of $142,000 or more. Critically, that 23% floor applied uniformly no matter how high a taxpayer's income climbed above $142,000 — so a resident earning $200,000 and a resident earning $20 million received the same 23% credit.
The New, Steeper Phase-Down
The new law adds a second phase-down on top of the existing schedule: it carves out a new band between $1,000,000 and $1,250,000 of City taxable income, within which the credit now gradually declines from 23% to 15%. For anyone with City taxable income of $1,250,000 or more, the credit is capped at a flat 15%. Income between $142,000 and $1,000,000 is unaffected and still receives the flat 23% credit. In other words, unincorporated business owners with City taxable income above $1 million now receive a materially smaller credit than taxpayers at every other income level — a reduction of more than a third at the top of the scale. The Council's own fiscal impact statement estimates the change will raise roughly $67 million annually starting in Fiscal 2027.
For a partner or sole proprietor with, for example, $2 million of City taxable income and a meaningful UBT liability – this isn't a rounding error. Losing eight percentage points of credit on that liability is real money, layered directly on top of already high combined federal, state, and City rates.
Notably, this wasn't even the harshest version on the table — Mayor Mamdani's original budget proposal would have started phasing down the credit at just $142,000 of taxable income and capped it at 15% for anyone above $1 million, on the theory that the credit "overwhelmingly benefits millionaires."1 The Council's version, while somewhat narrower in scope, still lands at essentially the same $67-68 million in projected revenue.
Another Data Point in a Familiar Pattern
We've been tracking this trend for a while now. New York City residents in the highest brackets are already paying federal, state, and City income taxes at a combined rate north of 50%, before layering in City-specific taxes like the UBT and the Commercial Rent Tax. Add to that the Mayor's proposed roughly 9.5% property tax increase floated as a contingency to close the City's budget gap, and now this UBT credit cut, and the pattern becomes hard to ignore: when a broader income tax increase requires legislative approval that hasn't materialized, lawmakers have turned instead to measures already within their authority – luxury second homes, the UBT credit, and so on – and high-income residents running their own businesses or holding City real estate keep absorbing the difference.
We've said it before: the risk for policymakers is that the taxpayers footing the largest share of the bill are also the most mobile, and jurisdictions like Florida remain an increasingly attractive alternative with no personal income tax. Anecdotally, this calculus appears to be playing out more frequently as targeted measures like this one accumulate — a credit cut framed as a "someone else will pay" measure is precisely the kind of change that tends to accelerate residency planning rather than deter it.
One Wrinkle Worth Watching
Before anyone assumes this change is a fait accompli, it's worth flagging a procedural issue. New York State's enabling statute, Tax Law § 1310(e), authorizes the City to reduce the UBT credit to as low as 15% for taxpayers above $142,000 in City taxable income. But that same statute requires the City to mail a certified copy of any such local law to the state Department of Taxation and Finance by registered mail at least fifteen days before the law's effective date, unless the Department waives or shortens that window. Given that the credit reduction is retroactive to January 1, 2026, it's fair to ask whether the statutory notice requirement was satisfied for a law that reaches back that far. Retroactive tax legislation is already disfavored on due process grounds, and a notice defect under the enabling statute could give affected taxpayers an additional angle to challenge the 2026 reduction.
We'll be watching whether anyone takes up that fight.
1. See: Mayor Zohran Mamdani Releases $124.7 Billion Executive Budget for Fiscal Year 2027: https://www.nyc.gov/mayors-office/news/2026/05/mayor-zohran-mamdani-releases--124-7-billion-executive-budget-fo.
