Starting in the 2021 calendar year, NYS will allow pass-through entities (Partnerships, LLC’s, S Corporations) to make an election to pay the New York State tax for the owners related to the pass-through entity. The election to pay NYS taxes at the entity level for the 2021 tax year must be made by October 15, 2021 and the Pass-Through Entity Tax Return (“PTET”) is due by March 15, 2022.
Electing to pay NYS taxes at the entity level provides partners/members a federal deduction of the NYS taxes which are currently limited to the $10,000 SALT cap. This will provide a federal tax benefit for most resident owners of pass-through entities.
As with all new legislation, there are many unanswered questions. Currently there are no forms, detailed instructions or elections available to review. In addition, there are many other questions that remain unclear including:
1. Are all owners required to participate?
2. How are pass-through entities that include resident and non-resident partners treated?
3. S Corporations are only allowed to pay on NYS source income (how does this impact residents?)
4. What is the Impact of resident tax credits on the Pass-Through Entity Tax?
5. Individuals are still recommended to make individual estimates which means they would pay in twice the NYS liability owed.
Another consideration is that since this is an entity level tax – it will be a deduction for book purposes and impact financial statements. Consideration should be made regarding book treatment, as guidance from IRS states it must be paid by year end.
If you have any questions, please reach out to CTBK for guidance as more information becomes available.