NYC Mayor Proposes Slashing Pass-Through Business Tax Credit to Raise Revenue

New York City Mayor Zohran Mamdani is pushing to significantly scale back a key business tax credit as part of a contentious effort to close the city's budget gap, a move that has alarmed small and mid-sized business owners. The proposal, detailed in recent weeks amid negotiations over the city’s $127 billion budget, would reduce the value of the city’s Pass-Through Entity Tax (PTET) credit from a full 100% offset to just 75%. The PTET is an optional tax that partnerships and S-corporations can elect to pay at the entity level on their income. In return, the individual owners or shareholders receive a corresponding credit on their personal New York City income tax returns. This structure was created as a popular workaround to the $10,000 federal cap on state and local tax (SALT) deductions established by the 2017 Tax Cuts and Jobs Act. By shifting the tax payment from the individual to the business, owners could effectively deduct their full city income tax liability as a business expense on their federal returns. Mayor Mamdani’s proposal would cap the personal income tax credit at 75 cents on the dollar. This means an owner whose business paid $100,000 in PTET would only be able to use $75,000 of that to offset their personal city income tax liability, leaving them with a new $25,000 tax bill. The mayor’s office estimates this change alone would generate approximately $700 million in new annual revenue for the city. While the administration has often framed its tax proposals as targeting large corporations and the wealthy, business leaders argue the PTET reduction would have a much broader impact. According to reports, the credit is widely used by partners in law firms and principals at hedge funds, but also by a vast number of smaller, Main Street businesses structured as S-corps or partnerships. This includes restaurants, consultancies, medical practices, and retail shops. In our experience, the PTET has been a critical financial planning tool for business owners since the federal SALT cap was introduced. Reducing the credit is not a simple tweak; it effectively claws back a federal tax benefit that New York had previously enabled for its entrepreneurs. This isn't just a tax on the wealthiest firms; it directly impacts the profitability of countless service providers, retailers, and family-owned companies structured as pass-throughs. Navigating these abrupt state and local tax changes is a core challenge for our clients. For businesses trying to understand their new potential liability and adjust their financial strategy, expert guidance is essential. C&S Finance Group LLC provides specialized tax preparation and compliance services to manage exactly these kinds of complex regulatory shifts, and business owners can learn more at csfinancegroup.com. Concerns are growing that the change could harm what some leaders call the city’s “fragile” economy. John Catsimatidis, CEO of the Gristedes supermarket chain, warned that the cumulative effect of new taxes could push not only top earners but also middle-income professionals and small-business owners to leave the city, eroding the tax base over the long term. The proposed PTET reduction is a key component of a larger tax package aimed at generating about $1.75 billion annually. This package represents a more targeted version of the broader tax increases Mamdani campaigned on. Other elements include raising the city’s corporate tax rate to 10.8% for financial sector firms and 10.62% for other corporations. The plan also calls for increasing the Unincorporated Business Tax (UBT) rate from 4% to 4.4% for businesses with income over $5 million. These proposals are part of an ambitious and aggressive tax agenda from the mayor. During his first 100 days in office, Mamdani backed new taxes that would, if enacted, raise a combined total of at least $23 billion. This includes a proposed 2% personal income tax surcharge on filers earning $1 million or more and a new property tax surcharge on residential properties valued over $5 million. The mayor has justified the tax increases as necessary to fill a budget shortfall, which his office has revised from an initial estimate of $12 billion down to $5.4 billion. However, the strategy has created significant political friction. Mamdani is reportedly delaying the city budget to pressure state lawmakers in Albany, who must approve many of the proposed city-level tax changes. He has also publicly clashed with City Council Speaker Julie Menin, accusing her of preferring service cuts to his tax plans. While the city's need for revenue is clear, the long-term risk is that policies like this could make New York City a less attractive place to operate a business. A shrinking tax base, driven by business departures, could ultimately create more severe budget problems than the one this measure aims to solve. The fate of the PTET credit now rests with state lawmakers as they weigh the mayor's proposals against competing priorities and concerns from the business community. Business owners across the five boroughs are watching the budget negotiations closely, as the outcome will directly shape their tax obligations and the city's economic landscape for years to come.