When the New York State (NYS) fiscal year 2023 budget bill was passed on April 8, it corrected a disparity in the extent to which pass-through entities can benefit from the NY pass through entity tax (PTET) – the state’s new workaround to the federal SALT cap.
Previously, for the 2021 tax year, NYS S Corporations that elected the PTET could only apply the benefit to NYS-sourced income. For certain S Corporations, this income allocation percentage is low due to the state’s market-sourcing apportionment rules. Partnerships, on the other hand, could apply the PTET rate to all NYS resident partners income sourced from any state.
Since higher PTET liability results in higher federal tax savings, the benefit was significantly limited for many of the state’s S Corporations – until now.
Beginning in 2022, NYS has leveled the playing field for certain S Corporations by creating two classifications for PTET purposes:
Electing Resident S Corporation
If all of the S Corporation’s shareholders are NYS residents, it will qualify as an Electing Resident S Corporation. These entities will calculate PTET on all items of income, gain, loss or deduction to the extent they are included in taxable income of the shareholder subject to NYS personal income tax.
Electing Standard S Corporation
All other S Corporations in the state will be classified as Electing Standard S Corporations, which will continue to calculate PTET based on NYS-sourced income.
Making the 2022 Resident S Corporation Election & Estimated Tax Payments
Since 2022 is a transitionary year, qualifying S Corporations have until March 15, 2023 to make the PTET election as an Electing Resident S Corporation.
First and second quarter estimated tax payments are due on March 15, 2022 and June 15, 2022 and are still based on 25% of tax as if the Electing Resident S Corporation was an Electing Standard S Corporation. All Electing Resident S Corporation are required to pay 75% of the total 2022 estimated tax by September 15, 2022.
Stay Connected to our Tax Advisors to Learn More
Also included within the 2023 budget bill is a new PTET for New York City taxpayers, effective for the 2023 tax year. Grassi’s Tax Advisors will keep you informed of new developments in this area.
If you have any questions about making the 2022 Resident S Corporation election or complying with estimated PTET requirements, please contact your Grassi tax advisor or Jason Drucker, Senior Tax Manager.