The Pass-Through Entity Tax (PTET) is an optional New York State tax that eligible corporations or pass-through entities (S-Corp, multi-member LLC and Partnerships) may elect to pay on shareholder(s) pass-through income for tax years beginning on or after January 1, 2021. This tax was enacted on April 19, 2021, generally designed in response to the $10,000 cap on the federal state and local tax (SALT) deduction from the Tax Cuts and Jobs Act in 2017. New York State is now accepting PTET payment until December 31, 2021, but had required that the election be made by October 15, 2021 for the 2021 tax year.
The PTET is essentially a SALT tax workaround, whereby any PTET amount paid by the corporation on the K-1 income of the shareholder is allowed as a federal deduction. The perspective end result is a lower K-1 pass-through income being accounted for on the shareholders personal tax return. This election is a benefit if the corporation is determined to have income for the corresponding tax year.
The corporation pays the New York State taxes on the shareholder’s K-1 income. The shareholder then receives a refundable credit of whatever is paid by the corporation (based on each owner’s share) on their New York State personal tax return by attaching Form IT-653. Notably, the legislation also allows residents of New York to take a credit against their personal income tax for pass-through entity tax paid to other states, provided that the other state’s pass-through entity tax is substantially similar to the New York PTET. The PTET tax rate for pass-through entity taxable income of up to $2,000,000 is 6.85%.
An electing entity must use the online return application to pay estimated tax on the amount of the PTET calculated for the current taxable year. Going forward, estimated payments will be 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.
An electing entity may make an online request by March 15 for a six-month extension of time to file its annual PTET return. An electing entity may not amend an annual PTET return for any reason once that return has been filed. The extension is an extension of time to file the annual return; it is not an extension of time to pay any tax due. The electing entity must pay all the PTET by the original due date of the return (on March 15 following the close of the taxable year- with an extended due date of September 15) or penalties for failure to pay taxes due are applicable.
An electing entity may apply its PTET estimated payments only to its PTET liability, not to any other taxes. In addition, it cannot transfer payments between related entities or individuals.
Note: An electing entity cannot make estimated tax payments after filing a return.
Reminder: The 2022 PTET election period will be January 1, 2022, through March 15, 2022. The PTET must be made online on an annual basis and is irrevocable. The election to opt into this optional tax can be made for entities that will have net income for the 2022 tax year.
