The New York State Department of Taxation and Finance issued new guidance this week on how S corporations and partnerships (i.e.: pass-through entities) can elect to be taxed under New York State’s (NYS) Pass-through Entity Tax (PTET) regime.
Effective for tax years beginning on or after January 1, 2021, election into the PTET regime for tax year 2021 must be made by October 15, 2021. This election provides pass-through entities and their owners a valuable workaround to the $10,000 federal cap on state and local tax (SALT) deductions.
Which entities are eligible to make the election?
- Any partnership with a New York State filing requirement or any New York State S corporation
How do I make the election?
- Election for tax years beginning on or after January 1, 2021 must be made online on an annual basis through the entity’s NYS Business Online Services account by October 15, 2021.
- Election for tax years beginning on or after January 1, 2022 can be made online between January 1 and March 15 of the tax year in which the election is made.
Calculating PTET taxable income differs by entity type:
- Aggregate Income, Gain, Loss and Deduction times the New York State Allocation Rate
- Pooled method for New York State Resident and Non-New York State Residents
- NYS residents are treated as 100% allocation to New York while non-residents receive a share of the credit based on their pro-rated state apportionment
The graduated PTET rates are follows:
- Up to $2,000,000 – 6.85%
$2,000,001 to $5,000,000 – 9.65%
$5,000,001 to $25,000,000 – 10.3%
Greater than $25,000,000 – 10.9%
How does PTET affect owner’s estimated tax payments?
- For the 2021 tax year, an electing entity is not required to make estimated PTET tax payments but may choose to do so prior to December 31, 2021. We recommend cash basis PTE do so. However, any personal income tax estimated payments must be made by shareholders as if they were not entitled to the PTET credit.
For tax years beginning on or after January 1, 2022, electing entities are required to pay estimated tax on the amount of PTET calculated based on current taxable year. Each quarterly payment should equal at least 25% of the annual payment, which is the lesser of:
- 90% of the PTET required to be shown on the entity’s return; or
- 100% of the PTET shown on the return of the electing entity for the preceding PTET taxable year
When is the PTET return due?
- March 15 the following year for which the election applies. PTET tax returns are prepared and filed on a calendar-year basis. Fiscal-year taxpayers should compute PTE taxable income for the fiscal year that ends within the PTET calendar year.
How does an individual claim the PTET credit?
- Eligible taxpayers can claim the PTET credit on Form IT-653, Pass-Through Entity Tax Credit, which is attached to their NYS individual income tax return. If the taxpayer receives multiple PTET allocations, the credits should be aggregated on the taxpayer’s individual income tax return.
- If the credit amount exceeds the taxpayer’s tax due for the year, the excess is an overpayment and will either be credited against the taxpayer’s following year’s estimated income liability or refunded without interest.
Resident Tax Credit
- Also effective for tax years beginning on or after January 1, 2021, resident partners, members or shareholders can also receive a resident tax credit against NYS individual or similar tax imposed by another jurisdiction. S corporations must be treated as a New York S corporation to receive this credit.
For more information on electing the PTET or claiming PTET tax credits, please contact Jason Drucker, Senior Tax Manager, at 516.918.5953, firstname.lastname@example.org, or Dorothy McAuliffe, Senior Tax Manager, at 944.849.0334, or email@example.com.