New York State Pass-Through Entity Tax (PTET)
In the 2021-2022 New York State (NYS) budget passed in late April NYS included a new pass-through entity tax (PTET), an optional tax for partnerships and S-Corporations that is due every year on March 15 and carry’s the individual income tax rates. The purpose of this optional tax is to alleviate the state income tax deduction limitation imposed under the Tax Cuts and Jobs Act of 2017. What this tax will do is allow a federal deduction against a partnership or S-Corporations taxable business income for the PTET tax paid at the business level, that is currently not deductible when paid at the individual level. The PTET tax paid by the business is then passed through to the partners/shareholders on there NYS shareholder statement as a NYS tax credit that can be used against the partners/shareholders individual income tax due as a dollar for dollar reduction in the tax due for what was paid by the business and passed through to the shareholder.
The benefit of paying this tax is a new deduction for the NYS PTET paid.
The disadvantage of this tax is for 2021 partners/shareholders and the business will be required to essentially double pay the partners/shareholders NYS individual taxes to the state, as the business will be required to pay the PTET tax based on 2021 income and the partners/shareholders should have already paid NYS estimated taxes to cover the same income. It will be refunded or applied to next year with the filing of the partners/shareholders individual return, but it will result in a higher cash outlay then would normally be required. Additionally, the NYS tax would now be due March 15th with the filing of the NYS PTET return as opposed to April 15th with the filing of the partners/shareholders individual income tax return. Quarterly estimates of the PTET tax will be required. Finally, you are required to annually elect into this tax, so you will need to log into the businesses NYS Department of Tax online account and make the election by March 15th of every year. For 2021 the election is due Oct. 15, 2021, and for 2022 and forward it is required by March 15 each year (due date for the calendar year S-Corporation and partnership tax return).
Once elected, the election is irrevocable for the year, so once made for each year you cannot decide not to file the actual PTET return in March. Also, a penalty will be assessed for any underpayment of the tax as applies to underpayment of tax on the NYS individual tax return and a penalty for late filing of the return if the March 15 due date is missed. Estimated payments will be required beginning for the 2022 year, so we will set you up with quarterly PTET estimated for the 2022 year based on 2021 actual PTET tax if we decide to make the election for 2021.
For more information or to make the election visit the NYS PTET web page – https://www.tax.ny.gov/bus/ptet/.
If you are considering making the election or have any additional questions in regard to the new NYS PTET, please reach out to us and we would be glad to assist you in making the decision as whether or not to make the election for 2021 or 2022.
As a reminder the 2021 election is due by Oct. 15, 2021, so make sure to log into your NYS account and make the election soon!