September 28, 2021
Dear Clients, Colleagues and Friends,
For tax years beginning on or after January 1, 2021, New York has implemented a new Pass-Through Entity Tax (PTET) as a workaround to the limitation on the State and Local Tax (SALT) deduction imposed by the federal Tax Cuts and Jobs Act (TCJA) of 2017. The move comes amid a rising number of states which have adopted similar alternative tax structures to mitigate the SALT cap imposed by the Internal Revenue Service. The SALT cap limits the federal individual itemized deduction a taxpayer may claim for their state & local income taxes and real estate taxes paid, to a maximum of $10,000 per year.
New York recently released long awaited guidance on the new PTET. Information regarding the PTET and the recently issued Technical Memorandum (TSB-M-21(1)C,(1)I can be found at https://www.tax.ny.gov/bus/ptet/.
Below is a key summary of the New York PTET:
- What Entities Are Eligible to Apply: Entities that are taxed as partnerships or s-corporations and meet the eligible criteria under Tax Law § 658(c)(1) & Tax Law § 208.1-A may make an annual PTET election. Please note that single-member LLC’s treated as disregarded entities, sole proprietorships, non-profit corporations and C corporations are NOT eligible to participate in the PTET
- How to Apply: An authorized individual for the entity must make the election online through the pass-through entity’s (PTE) New York Online Services account.
- When to Apply: For tax year 2021, the PTE must make their election by October 15, 2021. For tax years 2022 and beyond, the annual election may be filed between January 1 – March 15 each year. For example, 2022’s election is due March 15, 2022.
- When to Pay: For tax year 2021, a participating PTE will be eligible to remit an estimated tax payment by December 31, 2021. For tax years 2022 and beyond, estimated tax payments will be due March 15, June 15, September 15 and December 15.
- PTET Tax Rates: The PTET rates range from 6.85% to 10.90% of PTE taxable income.
- Partner/Shareholder Benefit: A partner or shareholder of an electing PTE will receive a credit that they will claim on their New York resident or non-resident tax return for their share of PTET paid on their behalf by their PTE. New York has indicated that partners and shareholders should continue to remit their New York individual estimated tax payments as if they were not entitled to a PTET credit. For tax years 2022 and beyond, partners and shareholders may reduce their required New York individual estimated tax payments by their projected share of their PTET credit.
- Planning Opportunity: Sole proprietorships & single-member LLC’s treated as disregarded entities may want to evaluate the tax benefits of being taxed as a partnership or s-corporation. Also participating cash basis PTE’s should consider remitting an estimated tax payment by December 31, 2021 to receive a 2021 federal tax deduction. Your P&N representative can assist with these unique planning opportunities.
Please reach out to your Presti & Naegele representative If you are interested in having your PTE participate in the PTET.
If you have any questions or need further information, please contact your Presti & Naegele professional directly, or dial 212-736-0055 for immediate assistance.
Presti & Naegele