By Joseph M. Becht, CPA, CGMA, Senior Manager
The pass-through entity tax (PTET) created under new Tax Law Article 24-A is an optional tax that eligible New York S corporations and partnerships may annually elect to pay on certain income for tax years beginning on or after January 1, 2021. If the eligible entity elects to pay the PTET, shareholders, members or partners of the electing entity who are subject to the tax under Article 22 may be eligible to claim a PTET credit on their New York State individual income tax returns.
The deadline to submit an online PTET election ended on October 15, 2021 for tax years beginning on or after January 1, 2021. For those that were unable to file the election by this date, you will have the opportunity to reevaluate and submit an annual election for the next tax year beginning January 1, 2022.
The New York State Department of Taxation and Finance issued a Technical Memorandum (TSB-M-21(1)C, (1)I providing additional information on the PTET. Below are some of the highlights:
PTET tax for 2021
- The electing entity is not required to make any estimated tax payments for PTET for the 2021 tax year. How-ever, the entity may choose to make optional online estimated tax pay-ments prior to December 31, 2021. An online estimated tax application for PTET will be available on the NYS website by December 15, 2021.
PTET tax years beginning on or after January 1, 2022
- The electing entity is required to pay estimated tax on the amount of PTET determined for the current taxable year utilizing the NYS online application.
- The estimated tax payments are due on or before March 15th, June 15th, September 15th, and December 15th in the calendar year prior to the year in which the PTET return filing is due. The required quarterly estimate installments should be at least 25% of the required annual payment, which is the lesser of 100% of the PTET shown on the preceding year tax return, or 90% of the current year PTET as shown on the current year return.
Filing of annual PTET return and calculation of PTET credits
- The annual PTET tax return is due on or before March 15 and must be filed using the NYS online return application. Once a PTET return is filed, the electing entity cannot amend the return for any reason.
- The electing entity can request a six-month extension of time to file the PTET return through their NYS Business Online Services account.
- Careful attention must be made by the electing entity with regards to the calculation and reporting of the PTET credits. The PTET credits are only available to each partner, shareholder, or member that are taxable under Article 22. The PTET credits reported cannot exceed the total PTET paid by the electing entity. The electing entity must disclose on its return all PTET credit eligible taxpayers with their respective credit amounts in order for the taxpayers to use the PTET credit on their NYS individual income tax returns.
- Taxpayers that are eligible to receive a PTET credit from an electing entity, may claim the credit using NYS Form IT-653, Pass-Through Entity Tax Credit and attach the form to their NYS individual income tax return. A partner, shareholder, or member that is not subject to tax under Article 22 is not eligible for the PTET credit.
- An eligible taxpayer claiming the PTET credit is required to make an addition modification to the federal adjusted gross income on the eligible taxpayer’s NYS individual income tax return for an amount equal to the PTET credit claimed.
- If any allowable PTET credit exceeds a taxpayer’s tax due for the year, the excess will be treated as an overpayment to be credited or refunded without interest.
- An eligible resident partner, member, or shareholder will be allowed a resident tax credit against their NYS individual income tax for any PTET imposed by another state, local government, or the District of Columbia, that is substantially similar to the PTET imposed under Article 24-A paid by a partnership or NYS S-Corporation to another jurisdiction.
While we will continue to monitor any further PTET guidance from the New York State Department of Taxation and Finance, it is crucial that businesses weigh the benefits and risks of making the PTET election and paying taxes at the entity level. There are multiple considerations to evaluate since each entity has a unique set of circumstances. Should you have any questions regarding the PTET, please contact us at Tronconi Segarra & Associates.