UPDATED New York: Passthrough Entity Tax Election
Updated guidance: Eligible entities must make this election through the entity’s Business Online Services account, now through October 15, 2021. If the entity does not have a Business Online Services accounting, the authorized person will need to create one. Important to note, you should talk with your tax professional about this election before making it. There are some cases where this election would not be advisable. Your tax professional can make the calculation for you and provide a recommendation on whether this is advisable in your specific situation.
This is an annual irrevocable election. Once an election is made, the entity must make quarterly tax estimated payments.
The steps to making the election, per the tax.ny.gov/bus/ptet/#optin site are below. To opt into the PTET:
- Log in to (or create) the eligible entity’s Business Online Services account.
- Select the ≡ Services menu in the upper-left corner of the Account Summary homepage.
- Select Corporation tax or Partnership tax, then choose PTET web file from the expanded menu.
- On the Form Selection page, choose Pass-Through Entity Tax (PTET) Annual Election.
Important: The authorized person must electronically sign and attest to having the electing entity’s authorization.
Our original article on “New York State Pass-Through Entity Tax Election” is below.
A link to the updated guidance can be found HERE.
New York State Pass-Through Entity Tax Election
New York State has enacted a new passthrough entity (PTE) tax as part of the most recently approved budget that was passed on April 6, 2021. This provides a long-awaited workaround to the $10,000 Federal State and Local Tax (SALT) Cap that was passed under the Tax Cuts and Jobs Act in December 2017.
Partnerships and S Corporations can make an annual election to pay the New York State tax at the entity level, allowing the partners and shareholders of these entities to take a credit for the taxes paid on their personal tax return. The allowable credit will be equal to the amount of the partners’ and shareholders’ direct share of the PTE tax. Businesses are expected to deduct the state income tax as a business tax expense at the entity level on the pass-through entities’ federal tax returns, and not at the business owners’ level, i.e., the state tax will not be required to be deducted as an itemized deduction for individual business owners; as such state tax expense deductions will not be limited to $10,000.
Eligible Partnerships and S Corporations must make the election by the due date of the first estimated tax payment, and once they have done so, it is irrevocable for the year in which it is made. However, there is an exception for tax year 2021 that allows for the election to be made until October 15, 2021. For 2021 only, the electing Partnerships and S Corporations are not required to make estimated tax payments. Partners and shareholders that are electing to take advantage of the PTE tax should continue to make personal estimated tax payments for tax year 2021.
An effective election will need to be made by an officer, manager, or shareholder of an S Corporation. The election for a partnership can be made by any member, partner, owner, or other individual that has authority to make binding decisions or sign tax returns.
New York has been seeking an alternative to the Federal SALT cap for some time now. Multiple other states have enacted similar PTE tax, including Connecticut, Louisiana, Maryland, New Jersey, Oklahoma, Rhode Island, and Wisconsin.
Our tax professionals have extensive experience in providing many creative tax strategies including leveraging maximum tax credits and deductions available. We aggressively pursue all allowable options available that will benefit our clients. Contact us today to start tax planning for 2021-2022.
The materials contained herein are intended for educational and informational purposes only and do not constitute tax or legal advice. Readers are responsible for obtaining such advice from their tax and legal counsel.