Don’t Miss the New York State Pass-through Entity Tax Program Election for the 2022 Tax Year!
The New York State Pass-Through Entity Tax (PTET) was established by the state to provide a workaround to the state and local tax (SALT) cap that was enacted with the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA limited an individual’s deduction for state and local taxes to $10,000, essentially eliminating the deduction for state income taxes for the vast majority of business owners.
The PTET effectively allows pass-through business owners to take a federal income tax deduction for their state income taxes, which were previously being disallowed due to the SALT cap.
Entities that make the election will pay a graduated tax of up to 10.9% on their New York State taxable income at the entity level, while their individual partners, members and shareholders will receive a refundable tax credit equal to the pro rata share of taxes paid by the electing entity.
Eligible Partnership: Any partnership (including a limited liability company (LLC) treated as a partnership for federal income tax purposes) that has a filing requirement under Tax Law § 658(c)(1) and is not a publicly traded partnership. A partnership is eligible to make the election even if it has partners that are not eligible for the PTET credit, including, but not limited to, corporate partners.
Eligible S Corporation: Any New York S corporation (including an LLC treated as an S corporation for New York and federal income tax purposes) as defined by Tax Law § 208.1-A that is subject to the fixed dollar minimum tax under Tax Law § 209.
C Corporations: Not eligible. C corporations are not a pass-through entity and already can deduct state income taxes at the federal level.
Form 1040, Schedule C Filers: Not eligible as they are not a pass-through entity. However, some Schedule C filers should explore electing S corporation status to obtain this and other tax-saving benefits.
An eligible entity must make an irrevocable election to participate in the 2022 PTET program through New York State’s online portal by March 15, 2022. The election must be made by an authorized person of the organization, which includes any member, partner, owner or other individual with authority to bind the entity and sign tax returns. Certified Public Accountants and tax preparers are not considered authorized persons and, therefore, cannot make the election on an entity’s behalf. However, we can work with you to set up a Business Online Services account.
Accessing the Portal and Making the Election
If the eligible entity does not already have a Business Online Services account with New York State, an authorized person will need to first create one. This may take a few days to get an account set up. The Business Online Services account can be created at the following website by selecting “Business” then “Create a Business Account.”
To create an online business account, the authorized person must verify one of the following:
- Information from a New York State corporation, sales and withholding tax returns filed for your business. The authorized person will need to provide information from a return for each tax type filed within the last 12 months.
- The five-digit PIN from a letter you received from the New York State Tax Department.
- Confirmation that your business has not filed any New York State corporation, sales or withholding tax returns within the last 12 months
Once an online account has been established, the authorized person will need to log in to make the election. Once logged in, select “Services” in the upper left corner. Under “Services”, you will select “Corporation Tax” (or “Partnership Tax”), followed by “PTET web file” and select “Pass-Through Entity Tax (PTET) Annual Election.”
Estimated Tax Payments and Annual Returns
2022 Estimated Tax Payments: Beginning with the 2022 tax year, entities that opt-in to the New York State PTET must make estimated tax payments on a quarterly basis (due March 15, June 15, September 15 and December 15). Each payment should be equal to 25% of the required annual payment for the taxable year, which is the lesser of:
- 90% of the PTET required to be shown on the return of the electing entity for the taxable year; or100% of the PTET shown on the return of the electing entity for the preceding taxable year.
- 100% of the PTET shown on the return of the electing entity for the preceding taxable year.
If the entity did not participate in the 2021 New York State PTET, for 2022, the electing entity must pay in at least 90% of the current year NY PTET.
Annual PTET Returns: Electing entities must file an annual PTET return on or before March 15 of the following year. If an extension of time is needed to file your PTET return, New York State allows a 6-month extension of time similar to your federal extension.
Claiming the PTET Credit
Eligible taxpayers must claim their PTET credit on Form IT-653, Pass-Through Entity Tax Credit, and attach the form to their individual New York State income tax return. The PTET credit may not be claimed on group returns filed for nonresident partners (i.e., Form IT-203-GR) or nonresident shareholders of S corporations (i.e., Form IT-203-S). Taxpayers with PTET credits exceeding the tax due for the year may get the excess credit refunded.
If you are interested in making the PTET election for the 2022 tax year, please contact one of our experts, and we can help you navigate this new tax saving strategy.
Contributing author: Mickel Pompeii, CPA, CDA, is a tax partner with 13 years of experience in taxation and tax planning for individuals and closely held companies. He is responsible for overseeing tax engagements for a variety of the firm’s clientele, with a focus on manufacturing firms.