What Is New York Tax? A Breakdown of NYC Tax Rates and Types

New York City has a complex tax system with multiple layers at both the state and local levels. Residents, businesses, and visitors contribute through income, sales, property, and excise taxes. Understanding these taxes is essential for managing finances effectively.

This guide breaks down key NYC tax types and rates to help you navigate what you might owe.

Income Tax

New York City is one of the few U.S. cities that imposes a local income tax in addition to the state tax. This tax applies only to residents, regardless of where they work. Nonresidents, even those earning income in the city, are not subject to it. The tax is based on taxable income as determined by New York State, meaning state deductions and credits also impact city tax liability.

The city’s income tax rates are progressive, with four brackets ranging from 3.078% to 3.876% as of 2024. Unlike the state tax, NYC does not offer standard deductions but provides credits such as the New York City Earned Income Credit, which equals 5% of the federal Earned Income Tax Credit.

Self-employed individuals must include city income tax in their estimated quarterly payments, as it is not withheld like it is for W-2 employees. Underpayment can lead to penalties, calculated based on the shortfall and the federal short-term interest rate plus 3%. Additionally, sole proprietors and partnerships may be subject to the NYC Unincorporated Business Tax (UBT), which imposes a 4% tax on net income over $95,000.

Sales and Use Tax

New York City has a combined sales tax rate of 8.875%, which includes 4% from the state, 4.5% from the city, and a 0.375% surcharge for the Metropolitan Commuter Transportation District (MCTD). Businesses collect this tax at the point of sale and remit it to the government. Some necessities, such as unprepared food and prescription medications, are exempt, while restaurant meals, electronics, and luxury goods are fully taxable.

Businesses operating in NYC must obtain a Certificate of Authority from the New York State Department of Taxation and Finance before collecting sales tax. Failure to collect and remit the correct amount can result in penalties, including interest on unpaid taxes and fines for noncompliance. Retailers must also correctly classify taxable and exempt sales to avoid audits. For example, while clothing items under $110 per item are exempt from state sales tax, they remain subject to the city’s 4.5% tax.

Use tax applies to taxable goods and services purchased outside NYC but used within the city. If a resident buys a laptop from a state with no sales tax and brings it into NYC, they must report and pay the 8.875% use tax on their state tax return. Businesses face similar obligations when acquiring equipment or supplies from out-of-state vendors. The state enforces use tax compliance through audits and penalties.

Property Tax

New York City’s property tax system is structured around four property classes: Class 1 for one-to-three-family homes, Class 2 for multifamily buildings, Class 3 for utilities, and Class 4 for commercial properties. Each class has different assessment ratios and tax rates, leading to significant variations in tax burdens.

Class 1 properties are assessed at 6% of market value, resulting in lower tax bills for homeowners. In contrast, commercial properties in Class 4 are assessed at 45% of market value, leading to significantly higher taxes. The city limits annual increases in assessed value for Class 1 and some Class 2 properties, preventing sudden spikes in tax liability. However, these caps can create long-term disparities, where newer homeowners pay higher taxes than those who have owned their properties for decades.

Co-op and condo owners face a unique challenge, as their buildings are taxed as if they generate rental income, even when owner-occupied. This often results in inflated assessments, though the city offers the Cooperative and Condominium Property Tax Abatement program, which reduces tax liability by 17.5% to 28.1%, depending on unit classification. To qualify, the unit must be the owner’s primary residence, and applications must be submitted to the NYC Department of Finance by the annual deadline.

Excise Taxes

New York City imposes excise taxes on specific goods and services, including cigarettes, alcoholic beverages, and motor fuel. These taxes serve both as revenue sources and regulatory measures.

The city levies an additional $1.50 per pack cigarette tax on top of the state’s $4.35 per pack rate, bringing the total to $5.85 per pack before federal excise taxes. High cigarette taxes have led to tax avoidance, with some consumers purchasing from lower-tax jurisdictions or illicit markets. The city enforces compliance through fines and potential criminal penalties for untaxed sales.

Alcoholic beverage excise taxes vary by type and volume. Distilled spirits are taxed at $1.70 per liter at the state level, with an additional city tax of $0.264 per liter. Beer is taxed at $0.14 per gallon by the state, with NYC adding $0.12 per gallon. These taxes are typically included in retail prices, meaning consumers may not always be aware of the additional cost. Bars, restaurants, and liquor stores must maintain detailed records and remit these taxes to avoid audits and penalties.

Fuel excise taxes impact both businesses and individuals. The combined state and city tax on gasoline includes a per-gallon excise levy of $0.08 at the state level, plus additional surcharges and fees, bringing the total effective tax to over $0.45 per gallon. Commercial transportation companies, including taxi and rideshare operators, must account for these costs in their pricing. The city also imposes a separate tax on for-hire vehicles such as Uber and Lyft rides, charging $2.75 per trip for single-passenger rides and $0.75 per passenger for shared rides.

City Surcharges

New York City imposes additional surcharges to fund infrastructure, transit, and municipal services.

The hotel occupancy tax adds 5.875% to the cost of accommodations, plus a flat fee of $2 per night for rooms costing $40 or more. Combined with sales tax, the total tax burden on hotel stays reaches nearly 14.75%. Short-term rentals, such as Airbnb listings, are also subject to this tax, with enforcement increasing due to stricter regulations on short-term leasing.

Businesses face surcharges such as the Metropolitan Transportation Business Tax (MTA Surcharge), which applies to corporations subject to the state’s corporate franchise tax. This surcharge, set at 30% of base tax liability in 2024, helps fund the Metropolitan Transportation Authority.

Rental car transactions within the city are subject to a 12% surcharge, significantly increasing costs for residents and tourists who rely on short-term vehicle rentals.