Business Guidance

New York Provides Latest Guidance on the State’s Pass-Through Entity Tax (PTET)

The State of New York has followed the trend set by some of its neighboring states and enacted a Pass-through entity tax for New York partnerships and S-corporations for years beginning on or after January 1, 2021.

Per the NY Department of Taxation and Finance Website: “The deadline to opt in to the optional PTET for 2021 is October 15, 2021. Your business needs a Business Online Services account to opt in. If your business does not have an account, we recommend creating one by October 8 to avoid missing the election deadline.”

Similar to the New Jersey BAIT program enacted in 2020, the NY PTET, “an eligible partnership or eligible New York S corporation (electing entity) elects to pay the PTET, its partners, members, or shareholders subject to tax under Article 22 (personal income tax) may be eligible for a PTET credit on their New York State income tax returns.”

These type of elective pass-through income tax regimes have been put in place to allow certain eligible small business owners the opportunity to receive a deduction for state income taxes against their federal taxable income for amounts paid through their business, which were previously limited on a taxpayer’s personal 1040 tax return starting in 2018.

Some of the highlights of the New York PTET program are as follows:

  • It must be elected for Y2021 by Oct 15th.
  • Any payments to be claimed as a deduction for Y2021 must be made by Dec 31, 2021.
  • Only individual partners of a partnership or S corp individual shareholders can claim a NYS tax credit.
  • According to the NYS website, NYS personal estimated tax payments still need to be made (presumably) on all other NYS income as noted below:

Regardless of whether an electing entity chooses to make optional estimated tax payments for tax year 2021, personal income tax estimated payments must be made by or on behalf of partners, members, or shareholders under Article 22 calculated as if they were not entitled to the PTET credit. Personal income tax estimated payments are not considered prepayment of PTET and may not be applied to PTET liabilities.

According the NY state website, starting in year 2022, “An electing entity must use the online application to pay estimated tax on the amount of the PTET calculated for the current taxable year. Estimated payments are due on or before March 15, June 15, September 15, and December 15 in the calendar year prior to the year in which the due date of the return falls. Each quarterly payment should be an amount equal to at least 25% of the required annual payment for the taxable year.”

The State is clear that the calculation of the New York Pass-through entity tax differs for partnerships and s-corporations and taxpayers (Resident and Nonresident partners, members, and shareholders) should engage their CPA to provide guidance as to the whether the election makes sense for their business and how the PTET tax liability is calculated.

Charles F. Ott, MBA/CPA

Co-Managing member

cott@ljcpa.com

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