New York Healthcare Dental Tax: Tax Services for Healthcare & Dental Practices

The Unincorporated Business Tax — usually called the UBT — is a New York City-specific tax that catches a lot of medical and dental practice owners off guard. It is a 4% tax on the net income of any unincorporated business operating within the five boroughs of New York City. If your practice is structured as a sole proprietorship, a partnership, or a limited liability company (including a PLLC), and you earn more than $100,000 in net income from that business, the UBT applies to you. It is separate from your federal income tax, your New York State income tax, and your NYC personal income tax — it is an additional layer of taxation that only affects NYC businesses with these particular structures.

Let me put some real numbers on this so it is concrete. Say you run a two-dentist practice in Midtown Manhattan structured as a PLLC. Your total collections are $1.8 million, and after paying staff salaries, rent, supplies, lab fees, and equipment costs, your net income is $650,000. The UBT on that income is $650,000 multiplied by 4%, which equals $26,000. That $26,000 is in addition to your federal income tax (at rates up to 37%), your New York State income tax (at rates up to 10.9%), and your New York City personal income tax (at rates up to 3.876%). It is also in addition to self-employment tax if you have not elected S-corp status. When you stack all of those together, a practice owner in NYC can easily face a combined marginal rate above 50%.

The UBT does come with a partial credit that offsets some of your NYC personal income tax liability, but the credit does not make you whole. The credit is calculated on a sliding scale, and for higher-income practice owners, it covers a smaller and smaller percentage of the UBT paid. For a dentist earning $650,000, the credit might offset about 60% to 65% of the UBT you actually paid. So the effective additional tax burden from the UBT is roughly 1.4% to 1.6% of net income — which still works out to $9,000 to $10,000 on $650,000 of income. That is real money that goes away every single year.

Now, here is the important structural point: the UBT does not apply to incorporated businesses. If your practice is structured as a professional corporation (PC) — which is the required entity type for medical and dental practices that want to incorporate in New York — and you have elected S-corp status with the IRS, you are not subject to the UBT. The corporation itself pays the New York State S corporation fixed dollar minimum tax (typically $500 to $4,500 based on receipts), but that is a fraction of what you would owe under the UBT. No 4% surcharge on your practice income.

This is one of the single biggest reasons we recommend that dental and medical practice owners in NYC incorporate and elect S-corp status. The combination of UBT elimination plus payroll tax savings from the S-corp structure can easily save a practice $30,000 to $50,000 per year. And because the UBT exemption for S-corps is based on entity structure rather than income level, it works the same whether your practice earns $300,000 or $3 million in net income.

There are some important nuances to watch out for. First, if you operate your practice as a partnership or multi-member LLC, each partner’s share of the UBT flows through to them on a pro-rata basis. If three doctors are equal partners in a PLLC earning $1.5 million in net income, each one picks up $500,000 of UBT-subject income and owes $20,000 in UBT individually. Second, the UBT applies to all income earned within New York City, not just income from NYC patients. If your practice has one location in Manhattan and one in Westchester, you need to allocate income between the two locations — the Westchester income is not subject to the UBT. The allocation is based on where the services are performed, which is straightforward for a practice with fixed physical locations.

The filing requirements for the UBT are handled on Form NYC-202 for individuals and Form NYC-204 for partnerships. The return is due on the same date as your personal return (April 15 for calendar-year taxpayers), and estimated payments are required quarterly if you expect to owe more than $3,400 in UBT for the year. Miss those estimated payments and you will face penalties and interest from the NYC Department of Finance, which is a separate entity from the IRS and the New York State Department of Taxation and Finance.

For practices that are already operating as PLLCs and have not incorporated, the process of converting to a PC and electing S-corp status takes some planning. You will need to form the professional corporation through the New York Department of Education (since dental and medical practices require approval from the relevant licensing board), transfer assets from the PLLC to the PC, file Form 2553 with the IRS for the federal S-corp election, and file Form CT-6 with New York State for the state-level election. The whole process typically takes 4 to 8 weeks if everything goes smoothly, and the timing matters because you want the S-corp election to be effective from the start of a tax year if possible.

One more thing worth mentioning: the UBT has been around since 1966, and there have been periodic discussions about reforming or eliminating it. As of 2025, there is no serious legislative effort to repeal the UBT, so planning around it remains necessary for the foreseeable future. If your practice is in NYC and you are still operating as a PLLC or sole proprietorship, you should talk to us about whether incorporating and electing S-corp status makes sense for your situation. For the vast majority of practices earning above $200,000 in net income, it does — and the tax savings from eliminating the UBT alone often pay for the cost of the restructuring within the first year.

Yes, in most cases you can deduct the full cost of dental equipment in the year you purchase it, thanks to two provisions in the tax code: Section 179 expensing and bonus depreciation. But the details matter a lot, especially for high-cost items like CBCT scanners, CAD/CAM systems, dental lasers, and operatory build-outs, so here is how each provision works and where the limits come in.

Section 179 allows you to deduct the full purchase price of qualifying equipment in the year it is placed in service rather than depreciating it over several years. For 2026, the Section 179 deduction limit is $2,560,000, and it begins to phase out once your total equipment purchases for the year exceed $4,090,000. For a typical dental practice, you are very unlikely to hit the phase-out threshold. A new CBCT scanner might cost $100,000 to $200,000, a CEREC or CAD/CAM system runs $120,000 to $170,000, and a full operatory build-out with chairs, delivery units, and cabinetry might be $75,000 to $120,000 per operatory. Even if you do all of that in a single year, you are well within the Section 179 limits.

The key requirement for Section 179 is that the equipment must be used more than 50% for business purposes. For dental equipment installed in your practice, this is almost always met — you are not using your CBCT scanner at home on weekends. The equipment also needs to be placed in service during the tax year, meaning it has to be installed and ready for patient use, not just ordered or paid for. If you buy a laser in December but it does not get installed and calibrated until January, the deduction falls into the next tax year. This is a timing issue we see frequently with year-end equipment purchases.

Bonus depreciation is the other route, and it works slightly differently. Under the Tax Cuts and Jobs Act, 100% bonus depreciation was available through 2022, and it then stepped down to 80% for 2023 and 60% for 2024. The One Big Beautiful Bill Act cancelled the rest of that schedule. Bonus depreciation is back at 100% and permanent for property acquired after January 19, 2025. So if you buy equipment and place it in service now, you deduct the full cost in year one instead of spreading the balance over the asset’s recovery period.

Here is where it gets practical. For most dental practice owners, we recommend using Section 179 as your primary deduction method for equipment purchases because it does not depend on when the asset was acquired. If you buy a $150,000 CBCT scanner and elect Section 179, you deduct the full $150,000 that year. Bonus depreciation now gets you to the same place for property acquired after January 19, 2025, because the rate is back to 100%. The two routes only diverge for property under a written binding contract signed before January 20, 2025, where the old step-down still applies.

One thing to be aware of: Section 179 can only reduce your taxable income to zero from that business. It cannot create a net operating loss on its own. So if your practice’s net income before the Section 179 deduction is $120,000 and you bought $150,000 in equipment, you can only deduct $120,000 under Section 179 in that year. The remaining $30,000 carries forward to the next tax year. Bonus depreciation does not have this limitation — it can create a loss that offsets other income on your personal return, which can be valuable if you have significant income from other sources.

For leasehold improvements — things like new flooring, plumbing for additional operatories, HVAC upgrades, electrical work, or reception area renovations — the rules are slightly different but still favorable. Qualified improvement property (QIP) has a 15-year recovery period for regular depreciation purposes, but it is eligible for both Section 179 and the current year’s bonus depreciation rate. So if you spend $200,000 renovating your practice space in 2025, you can still deduct a large portion of that amount in the year the work is completed.

There is also the question of timing and financial sense. A lot of practice owners rush to buy equipment in December for the tax deduction, but that only makes financial sense if you actually need the equipment. Spending $150,000 to save roughly $55,000 in taxes (at a 37% marginal rate) means you are still out $95,000 in cash. The deduction reduces your tax bill, but it does not make the purchase free. We always tell clients to buy equipment when the practice needs it for patient care and revenue generation, and then improve the tax treatment — not the other way around. A purchase that does not improve your production or patient experience is a bad purchase regardless of the tax deduction.

From a record-keeping perspective, you need to maintain documentation showing the purchase date, the amount paid, the date the equipment was placed in service, and the business-use percentage. For financed equipment, the full purchase price is eligible for Section 179 or bonus depreciation even if you only put a small down payment — you deduct the full cost in year one, not just the amount you have paid so far. This can create a significant tax benefit in the year of purchase while you spread the actual cash outlay over the life of the loan.

One more New York-specific note: New York State does not fully conform to federal bonus depreciation. If you claim bonus depreciation on your federal return, you need to add back the federal bonus depreciation amount on your New York return (Form IT-225) and then take regular MACRS depreciation deductions over the asset’s recovery period at the state level. Section 179, but, is generally allowed by New York State with some limitations. This means your federal and state depreciation deductions will diverge if you use bonus depreciation, and your tax preparer needs to track the differences and handle the state adjustments correctly on every return from now on until the asset is fully depreciated at both levels.

Setting your salary as an S-corp owner-dentist in New York is one of those decisions that looks simple on the surface but has real consequences if you get it wrong. The IRS requires that S-corp shareholders who perform services for the corporation pay themselves a “reasonable salary”. Before taking any distributions. If your salary is too low, the IRS can reclassify your distributions as wages and hit you with back payroll taxes and interest. If your salary is too high, you are giving up the payroll tax savings that made the S-corp election worthwhile in the first place. Getting this number right is a balancing act, and it changes from year to year as your income fluctuates.

So what counts as reasonable? The IRS does not publish a specific number or formula. Instead, they look at several factors: what similar businesses pay for similar services in the same geographic area, the time and effort you devote to the business, your training and experience, your practice’s gross receipts and overall profitability, and what you paid employees for comparable work. For a general dentist in New York City, reasonable salary typically falls in the range of $180,000 to $280,000 based on Bureau of Labor Statistics data and dental industry compensation surveys. For specialists — orthodontists, oral surgeons, periodontists, endodontists — the range is higher, usually $250,000 to $400,000, depending on the specialty, your patient volume, and the local market.

Let me show you how the math works with a concrete example. Say your dental practice nets $600,000 after paying all expenses except your salary. You set your W-2 salary at $220,000. The remaining $380,000 passes through to you as an S-corp distribution. Here is what the tax picture looks like on the payroll side:

On the $220,000 salary, you pay the employee share of FICA: 6.2% Social Security tax on the first $168,600 (about $10,453) plus 1.45% Medicare tax on the full $220,000 ($3,190), plus 0.9% Additional Medicare Tax on the amount above $200,000 ($180). The corporation also pays its matching share of FICA: another $10,453 in Social Security tax and $3,190 in Medicare tax. Total payroll taxes on the salary: about $27,466 combined between employee and employer shares.

On the $380,000 distribution, you pay zero payroll tax. You still owe income tax on it — federal and city — but no Social Security, no Medicare, no FUTA, no SUTA. If that $380,000 had been subject to self-employment tax (as it would be if you were a sole proprietor), you would owe an additional $11,020 in Medicare tax alone (2.9% of $380,000). The Social Security portion would already be maxed out from the salary, so the marginal savings is primarily on the Medicare and Additional Medicare Tax side. Still, that is $11,000 per year staying in your pocket instead of going to the government, every single year, for the rest of your career.

Now, what happens if you get aggressive and set your salary at $100,000? The IRS will look at that and compare it to what a dentist in the NYC metro area actually earns. BLS data shows that the median compensation for dentists in the New York metropolitan statistical area is around $190,000 to $220,000, and that is for employed associates — not practice owners who are also managing the business. A salary of $100,000 for a practice owner-dentist is far below market and would almost certainly raise a red flag on audit. If the IRS reclassifies your distributions as wages, they will assess the unpaid payroll taxes plus a penalty (which can include the Trust Fund Recovery Penalty for the employee portion) plus interest running from the original due date. The total damage from a reclassification can be $30,000 to $50,000 or more in back taxes and interest.

On the flip side, do not set your salary at $400,000 just to be safe if your practice only nets $500,000 in total. The whole point of the S-corp structure is to split income between salary (subject to payroll tax) and distributions (not subject to payroll tax). A salary that consumes 80% of your net income leaves very little payroll tax savings on the table. We typically recommend targeting a salary that represents 40% to 55% of net income for most dental practices, with adjustments based on the factors the IRS cares about and the specific compensation data for your specialty and market.

There are some additional considerations specific to New York. Your W-2 salary determines your contribution limits for retirement plans like a solo 401(k) or a defined benefit/cash balance plan. A higher salary means higher contribution limits. For 2024, you can contribute up to $23,000 as an employee deferral to a 401(k) ($30,500 if you are over 50), plus the employer can contribute up to 25% of your W-2 wages as a profit-sharing contribution. If your salary is $220,000, the maximum employer profit-sharing contribution is $55,000. Combined with the employee deferral, you could shelter up to $78,000 ($85,500 if over 50) in a 401(k) in a single year. That is a substantial amount of tax-deferred savings.

If you add a cash balance plan on top of that, you can potentially shelter another $100,000 to $300,000 per year depending on your age (older participants can contribute more because the plan is designed to fund a target balance by retirement age). The contributions to a cash balance plan are also driven by your compensation level, so setting the salary appropriately is essential for making the most of retirement plan contributions. For a 50-year-old dentist, the combination of a 401(k) and a cash balance plan can allow total annual retirement contributions of $200,000 or more — all tax-deductible at the corporate level.

Your W-2 salary also affects your workers’. Compensation insurance premiums, your New York State Unemployment Insurance (SUI) contributions, and your disability insurance costs. Higher salary means higher premiums and contributions on those items, though most of them are capped at certain wage bases.

The best approach is to have your tax advisor run a payroll tax optimization analysis each year that balances four competing goals: keeping the salary defensible as reasonable compensation based on current market data, making the most of payroll tax savings on the distribution side, making the most of retirement plan contribution room based on the salary level, and minimizing audit risk from the IRS. We do this for every dental practice client as part of our annual tax planning process, and the optimal salary can shift from year to year as your practice income changes, as IRS contribution limits are updated, and as market compensation data evolves.

Yes, if you live or work in New York City, you have a separate city income tax obligation on top of your New York State income tax, and the filing requirements depend on your entity structure and where the income is earned. This is a point of confusion for a lot of practice owners, because the NYC personal income tax for individuals is technically reported on your New York State return rather than a standalone city return — but the business-level taxes are an entirely different story, and that is where the complexity really kicks in.

For individuals, the NYC personal income tax is reported on your New York State Form IT-201 (for full-year NYC residents) or IT-203 (for part-year residents and nonresidents). NYC income tax rates are progressive and range from 3.078% to 3.876% depending on your taxable income level. For a dental practice owner earning $500,000 in New York City taxable income, the NYC personal income tax adds approximately $19,380 on top of your state income tax. So while you do not file a completely separate NYC personal income tax return with a separate agency, the city tax is a real, significant additional tax that shows up as a separate calculation on your state return and results in a larger total payment.

Where it gets considerably more complicated is on the business side. If your practice is an unincorporated business — meaning a sole proprietorship, partnership, or LLC/PLLC that has not elected S-corp status — you need to file the NYC Unincorporated Business Tax (UBT) return. This is a genuinely separate filing from your state return, submitted directly to the New York City Department of Finance (not the New York State Department of Taxation and Finance). You use Form NYC-202 if you are an individual filer and Form NYC-204 if you are filing for a partnership. The UBT rate is 4% on net income above $100,000, and as discussed elsewhere on this page, it is one of the most expensive city-level business taxes in the country.

If your practice is structured as an S-corp, you are exempt from the UBT, but you still need to handle city taxes on the personal side. The S-corp income flows through to your personal New York State return via Schedule K-1 and is subject to both New York State and NYC personal income tax. The S-corp itself does not file a separate NYC business tax return — it files the New York State S-corp return (Form CT-3-S) and pays the fixed dollar minimum tax at the state level. This is one of the structural advantages of S-corp status for NYC practices: you eliminate the separate UBT filing and payment entirely.

For practices that operate in multiple locations — say you have an office in Manhattan and a satellite office in Westchester or New Jersey — you need to allocate income between the jurisdictions for NYC tax purposes. NYC taxes are based on income earned within the five boroughs, so income attributable to services performed at your Westchester location would not be subject to NYC personal income tax or the UBT. However, the allocation rules are not always straightforward, especially for service businesses where the dentist might split time between locations. The general rule is that income is sourced to where the services are physically performed, not where the patient lives or where the billing is processed.

There is also the question of the Pass-Through Entity Tax (PTET), which adds another layer to the filing picture. If your S-corp elects into the New York State PTET, the entity pays state income tax at the entity level, and you receive a dollar-for-dollar credit on your personal state return. This effectively lets you deduct your state income tax above the $40,000 SALT cap that has been in effect since 2018. However, the state PTET is just the beginning — there is a separate NYC PTET available for S-corps that qualify as “city resident” S-corps, meaning all shareholders must be NYC residents for the entire tax year. The NYC PTET rate is 3.876% and provides a credit against your NYC personal income tax. The NYC PTET election is made through the New York State Online Services portal (the same portal used for the state PTET), and the election deadline is March 15 of the tax year.

Estimated tax payments are another area where NYC adds real complexity to your filing calendar. You need to make quarterly estimated payments for your federal income tax to the IRS, quarterly estimated payments for your New York State income tax through the state’s online portal, and if you are subject to the UBT, quarterly UBT estimated payments to the NYC Department of Finance. If your S-corp has elected into the state PTET and/or the NYC PTET, the entity makes separate PTET estimated payments through the state portal on a different schedule. For a dental practice owner in NYC with an S-corp that has elected into both the state and city PTET, it is not uncommon to be tracking and making six or seven different estimated tax payments each quarter across federal, state, city, and entity-level obligations.

The filing deadlines generally align — April 15 for calendar-year taxpayers, with extensions available to October 15 — but the estimated payment schedules, the various filing portals, and the different agency contacts are all different. Federal estimated payments go to the IRS (via EFTPS or IRS Direct Pay). State estimated payments go through the New York State Online Services portal. NYC UBT estimated payments go to the NYC Department of Finance through their separate online system. PTET payments (both state and city) go through the state portal but on a different payment schedule than your personal estimated payments. Missing any of these deadlines triggers penalties and interest from the relevant agency.

Our recommendation for every dental and medical practice owner in NYC is to work with a tax preparer who understands the full stack of city and federal filing requirements and has experience with NYC-specific taxes like the UBT and the city PTET. It is not enough to file accurate federal and state returns — you need someone who knows the UBT rules, the PTET election mechanics and deadlines, the NYC income allocation formulas, and the estimated payment schedules for each agency. We handle all of these filings as part of our standard engagement for NYC-based healthcare practice owners, and we coordinate the estimated payment calendar so nothing falls through the cracks throughout the year.