By Adam O’Feeney, CPA, Senior Tax Manager
Enacted on April 19, 2021, New York’s 2021-2022 Budget Act included a new elective pass-through entity tax (PTET). Already enacted by a number of other states (including Connecticut), this type of tax is generally designed in response to the $10,000 cap on the federal, state, and local tax (SALT) deduction as added by the Tax Cuts and Jobs Act in 2017. This SALT deduction limitation applies to taxable years beginning after December 31, 2017 and before January 1, 2026, and limits an individual’s deduction to $10,000 for the aggregate amount of the SALT paid during the year.
New York’s PTET was enacted in Article 24-A effective for taxable years beginning January 1, 2021, and is generally applicable to partnerships, limited liability companies treated as partnerships for federal income tax purposes, and New York S corporations (including limited liability companies treated as S corporations for federal income tax purposes that make the New York S corporation election).
Generally, taxpayers must make an annual PTET election by March 15 of the tax year, at the same time that the first quarter estimated payment is due. However, for 2021, the election is due on October 15, 2021. The pass-through entity (PTE) would generally need to pay its PTET liability during calendar year 2021 to qualify for the federal SALT workaround under Notice 2020-75 and to be deductible on the 2021 federal return of the PTE. Once an election is made for a given year, it cannot be revoked.
For each taxable year beginning on or after January 1, 2021, the tax rates are graduated based on the total taxable income of the PTE:
|PTE Taxable Income||Rate|
|Under $2 million||6.85%|
|$2,000,000 – $5,000,000||$137,000 plus 9.65% of the excess over $2 million|
|$5,000,001 – $25,000,000||$426,500 plus 10.30% of the excess over $5 million|
|Over $25 million||$2,486,500 plus 10.90% of the excess over $25 million|
A partner or shareholder of an electing PTE is entitled to a dollar-for-dollar credit against New York personal income tax equal to such partner or shareholder’s “direct share” of the PTE tax. Electing PTEs generally must make quarterly estimated payments based on the expected income of the PTE. For 2021, such payments are not required, although full payment of the PTET would generally be necessary under Notice 2020-75 to qualify for the federal SALT deduction.
The New York State PTET annual web application is now available at https://www.tax.ny.gov/bus/ptet/.
An authorized person can opt in to the PTET on behalf of an eligible entity through the entity’s Business Online Services account. If the entity does not have a Business Online Services account, the authorized person will need to create one.
To opt in to 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.
If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at firstname.lastname@example.org.