New York State’s fiscal year 2022-2023 State Budget Bill and recent legislative amendments contain significant changes to the NYS Pass-through entity tax (PTET). Key changes include an extension of time to make the annual PTET election for the 2022 tax year, two classifications of S‑corporations for PTET purposes and the creation of a New York City pass-through entity tax (NYC PTET).
New York State 2022 PTET
NYS extended the PTET election deadline for the 2022 tax year to September 15, 2022, which opens up this opportunity to taxpayers that may have missed the original PTET election deadline. As a result of this extended timeframe, there are special estimated tax payment requirements based on the date the PTET election is made.
- For a 2022 election that is made after March 15, 2022 and before June 15, 2022 to be valid, the electing pass-through entity is required to make an estimated tax payment with its election equal to 25% of the required annual payment.
- For elections made after June 15, 2022 and before September 15, 2022, electing entities are required to make an estimated tax payment with their election equal to 50% of the required annual payment.
- For elections made on September 15, 2022, an estimated payment equal to 75% of the required annual payment must be made with the election.
Effective January 1, 2022, there are now two classifications of S-corporations for NYS PTET purposes. For the 2021 tax year, NYS S-corporations could only apply the benefit of the PTET to NYS sourced income whereas electing partnerships were able to apply the PTET rate to all NYS resident partners’ income sourced from any state. This made the PTET election much less advantageous for certain S-corporations.
Below are the two new classifications of S-corporations:
Electing Resident S-Corporation
All shareholders must be NYS residents. PTET is calculated based on all items of income, gain, loss or deduction to the extent they are included in the shareholder’s NYS taxable income. A certification to be taxed as an electing resident S-corporation for taxable year 2022 must be made by March 15, 2023. Further guidance on this certification to come at a later date.
Electing Standard S-Corporation
Does not certify that all its shareholders are NYS residents. Will continue to calculate PTET based on NYS sourced income.
New York City PTET
The State Budget Bill also created a New York City PTET similar to the NYS PTET, effective for tax years beginning on or after January 1, 2023. The optional annual NYC PTET election is available to eligible partnerships or S-corporations.